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Cape Town - Retail shares like Clicks Group [JSE:CLS], Shoprite Holdings [JSE:SHP], Spar Group [JSE:SPP] and Mr Price Group [JSE:MPC] reached new highs every day in the past week.
Woolworths Holdings [JSE:WHL] was the star performer, with a 3%-odd lift, one of the strongest rises on the JSE last week.
Retail sales figures announced by Statistics South Africa for April showed a rise of 3.2% year-on-year (y/y), reflecting a definite strengthening sales trend.
The market expectation was that they would be only 2.1% up.
It's also clear from the 2.2% y/y increase for the three months to end-April that the underlying trend is positive.
The growth in retail sales seems sustainable, despite the high household debt and unemployment levels, reckons Absa Asset Management retail analyst Chris Gilmour.
Spending depends particularly on the middle and higher income groups which, with more work and income certainty, have the consumer confidence to spend.
This is where Woolworths has the advantage, because it is the group’s typical customer who is spending more.
Woolworths was one of the first retailers to experience a severe downturn in sales during the recession because its middle-income customers, who carry the highest debt burden, are seriously constrained by high repayments.
But Woolworths was also the first retailer to cut prices aggressively, thus retaining many customers.
Going ahead it seems that Woolies is getting its clothing offerings right, and even an expensive range like Country Road is doing well, says Gilmour.
Abdul Davids, head of research at Kagiso Asset Management, agrees that Woolworths’ selections look better.
Its agreement with Absa’s financial services division made a considerable amount of capital available, new ranges were established in local stores and the group is doing something about its costs.
Davids reckons Woolworths is also attractive as a future share because the group's cash base is substantial and will be a good driver of earnings for the next two years.
One also needs, however, to look at the bigger picture to see the various drivers behind the retail share's performance.
Davids says rumours of Wal-Mart’s interest in a local company sparked foreign interest in South Africa and retailers.
On Friday, at his group's annual general meeting, Pick n Pay chairperson Gareth Ackerman mentioned the possible coming of Wal-Mart.
The possible entry of an international participant will considerably alter competition in the local environment, he predicted.
- Sake24.com
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