Johannesburg - Investors in the retail sector should brace themselves for poor results this year if recent indicators are anything to go by.
The performance of major retailers over the past festive season - generally a boom period - has not only left analysts disappointed, but has also confirmed the industry was still sailing through troubled waters.
While the markets anticipated that consumer restraint would persist throughout the last quarter of 2009, primarily due to job losses and short-shifting of workers, it has since emerged the magnitude was beyond expectations.
"Consumers have tightened their belts and are not yet ready to open their wallets," said Danie Pretorius, a retail analyst at RMB Morgan Stanley.
"Sales of big ticket discretionary items like appliances and jewellery are still lacklustre, and only value-orientated retailers like Mr Price, Shoprite and Clicks appeared able to grow unit volumes."
But even those value retailers who managed to buck the trend still scored below market expectations.
Mr Price - which was expected to benefit handsomely from the prevailing trend to shop down - disappointed markets by reporting sales growth of 8.4% over the three months to December earlier in January.
Shoprite also could not sustain its high base when it reported sales growth of 11.9% in the six months to December. Clicks was the only group that lived up to market expectations in this category, reporting a sales growth of 10% in the 18 weeks to January 3.
Massmart, whose brands include Game, Makro and Dion Wired, was among the hardest hit in the sector and has warned shareholders headline earnings per share would be between 16% and 24% lower than the previous year.
However, credit-orientated clothing retailer Truworths International took many by surprise when it said its sales for the 26 weeks to December rose by 10.6%, while rival Foschini could only grow sales by 4.9% in the three months to December.
Pick-up will be gradual
Woolworths Holdings, on the other hand, said on Wednesday its group sales grew by 9.3% in the 26 weeks to end-December compared to the same period in the previous year. As a result, headline earnings per share are expected to be between 35% and 45%, owing to reduced cost of sales.
While there is some hope in the numbers above, the industry is still going through difficult trading conditions.
"In general, consumers benefited from lower inflation than the year before, but volume growth for most retailers was muted, and in some cases negative," said Pretorius.
Independently, the Bureau of Market Research (BMR) and international rating agency Flitch Ratings have forecast that retail sales will only pick up from mid-2010.
"The pace of improvement in consumer retailers' sales and margins is expected to be gradual, and sales will remain well below pre-2009 levels until mid-2011," Roelof Steenekamp, the South African director of rating agency Fitch, said on Tuesday.
The BMR has forecast a 1.5% growth for formal retail sales in 2010.
"In fact, the lag effect of lower interest rates in 2009 is yet to reflect in the official retail sales figures in 2010. Whereas the Soccer World Cup could stimulate the retail trade environment in 2010, the event could also result in inflationary pressure, albeit only a temporary phenomenon," the BRM said.
The furniture retailers - which have been the hardest hit in the sector as they battle debt collections - are expected to leg any anticipated recovery.
- Fin24.com