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Stockland, which is the country’s biggest residential developer of master-planned communities, has seen a dramatic drop in sales and a deferral in settlements in the past six months due to bad weather, rising interest rates and a cautious consumer.

But the ASX-listed $9.28 billion company is confident its diversified business will help it offset the residential weakness with a focus on its large-scale industrial, logistics and workplace developments, including the M_Park Stage 1 project in Sydney and the improving sales at its retail malls, known as town centres.

Stockland chief executive Tarun Gupta said due to timing issues in building, bad weather along the eastern seaboard and interest rate rises, the group has reduced its target for residential lot settlements from 6000 to 5500 for the full year.

In the master-planned communities net sales for the half totalled 1804 lots, which was below the 3815 net sales in the corresponding period. The group has 5840 contracts on hand, and in the next 18 months is looking to launch eight new communities that will activate about 80 per cent of the land bank.

“As expected, successive interest rate rises since May 2022 have driven a moderation of demand, with inquiry rates returning to pre-COVID-19 levels and sales volumes slowing,” Gupta said.

“We deferred 500 lots into the 2024 financial year. That’s related to double the rain compared to normal we’ve had on the eastern seaboard, so that’s impacted production programs. But obviously, we’re a diversified business and our commercial property business has picked up that downside.”

For the half Stockland reported a statutory profit of $301 million, down from $850 million in the same period last year. The funds from operation – a more accurate measure for trusts as its takes out lumpy valuations – was $353 million, a rise of 0.7 per cent on the previous corresponding period.

Sequoia Asset Management’s Winston Sammut said the Stockland result came in below market expectations, notwithstanding good support from its commercial operations, driven by solid contributions from logistics and growth in funds from town centres operations of 13 per cent.

“Going forward, the market will likely focus on Stockland’s residential business to assess any further negative impact on lot sales/settlements in a rising interest rate environment.”

Gupta said the partnership with Mitsubishi Estate Asia will be extended out from the land lease business to invest in master-planned communities. He said there were opportunities to replenish the pipeline across the country.

Moody’s Investors Service vice president Saranga Ranasinghe, said the communities segment, which is more volatile than the commercial property segment, will likely continue to face headwinds from rising interest rates.

“Still, Stockland’s communities business continues to maintain strong development margins and default rates that are in line with historical averages,” Ranasinghe said.

“While consecutive interest rate rises have moderated sales volumes, we expect Stockland’s master planned communities to benefit from supportive long-term fundamentals for residential property, including relatively low unemployment, population growth and a rebound in net overseas migration, combined with continued constrained land supply.”

Stockland reported an interim distribution of 11.8¢ payable on February 28.

Australian retail sales rebounded in January as household spending defied inflation and higher borrowing costs, fortifying the case for the Reserve Bank to keep raising interest rates.

Interbank futures are indicating at least three more cash rate increases, taking the Reserve Bank to a top of 4.3 per cent by August, compared with 3.35 per cent now.

Importantly, they expect the policy rate to stay above 4 per cent well into 2024. Bond traders have sharply ramped up bets the central bank will raise the cash rate higher and keep it there longer, mirroring a trend in the US and Europe.

Retail sales rose 1.9 per cent in January after an unexpected drop in December, in seasonally adjusted terms. The figure beat forecasts for a 1.5 per cent gain.

The RBA has lifted the cash rate by more than 3 percentage points since May last year in the fastest tightening cycle in modern history to tame stubbornly high inflation.

Writing on the wall

On a real basis, meaning adjusted for inflation, sales are sharply weaker and losing momentum as interest rate rises continue to bite into discretionary spending, said Charlie Jamieson, co-founder and chief investment officer of Jamieson Coote Bonds.

“The biggest factor for the cash rate outlook remains the inflation outlook, but with weaker-than-expected wages last week, plus a rising unemployment rate and now weaker trends in retail sales, the rubber is meeting the road,” he said.

He believes the terminal cash rate is already in sight as the economy continues to cool, expecting a top between 3.85 per cent and 4.1 per cent. This would mean one or two more increases, a more dovish outcome than futures predict.

He argues that the lag effect of monetary policy is pronounced, and the rate increases that have been priced in for the early part of this year will not affect the economy until later this year or early 2024. “These long lags make it very likely that the RBA will over-tighten,” he said.

Financial markets ascribe a 92 per cent chance to the probability the RBA will lift the cash rate by 0.25 percentage points at its policy meeting on March 7.

Nomura concurs that the consumer is under pressure and that trend will become clearer in the coming months. In fact, he disagrees with market pricing suggesting the RBA will raise rates to 4.3 per cent: “That’s a little aggressive,” said Andrew Ticehurst, rate strategist at Nomura. In fact, he predicts the central bank will stop at 3.85 per cent.

He cautioned, however, that there is a risk it could be higher after Nomura last week upgraded its US Federal Reserve rate outlook. It is now tipping the Fed funds rate to rise to a 5.50 per cent to 5.75 per cent range, a full percentage point higher than where it currently stands.

Too soon

Analysts say it is too early to declare victory in bringing the Australian economy back into balance. Warren Hogan, an economic adviser to Judo Bank, argued that retail sales are dominated by goods retailing and after an extended period of strength through the pandemic, a period of weakness should be expected.

“It is way too early to be calling for a slump in consumer spending, particularly in light of the still strong labour market,” he noted.

“The reality is that Australians haven’t even started to substantially eat into their savings buffers yet, unlike the US and NZ,” said Mr Hogan.

He predicts the RBA will once again debate a 0.25 percentage point or a half a percentage point increase in April, with the cash rate topping 4.1 per cent by the time of the federal budget in May.

Key to consumption is services demand which is included in the national accounts data to be released on Wednesday.

The resilience in household spending is a reason analysts polled by Reuters forecast the economy grew a healthy 0.7 per cent in the December quarter, and 2.7 per cent for the year.

“A 1 per cent gain for the quarter would be a solid result and suggests the economy ended the year with quite a bit of momentum despite aggressive monetary tightening,” said Felicity Emmett, a senior economist at ANZ. She predicts a gain of 1 per cent in the December quarter, taking gross domestic product growth to 3 per cent annually.

The RBA projects the economy expanded 2.7 per cent last year, slowing to 1.6 per cent this year and next.

The Australian dollar bounced from a two-month low to US67.40¢. It has been hammered this month by a stronger greenback on speculation the Federal Reserve will have to do more to tame inflation.

The chief executive of Silk Laser Clinics says customers place a higher priority on regular Botox injections and beauty treatments than they do buying the latest jumper or dress, and that should enable robust trading to continue even in tougher economic times.

Martin Perelman said price rises of injectable treatments of 8 per cent since June last year and a new round of price rises in laser treatments of 8 per cent last month had had little effect in dampening demand.

“Our business is quite resilient to inflationary pressures,” he said. “They’re holding quite well.”

The nine consecutive rises in interest rates by the Reserve Bank of Australia had not altered the behaviour of the group’s 1.6 million customers.

“I think our customers will give up other things first,” Mr Perelman said, suggesting they would forgo a new jumper or a new dress rather than their regular four-monthly appointment.

“We aren’t seeing anything yet.”

Shares in Silk Laser jumped 13 per cent to $2.05 by noon on the ASX.

The group delivered a 20.3 per cent rise in net profit to $4.9 million for the six months ended December, with revenue up 21 per cent to $49 million. The average customer spend in calendar 2022 was $679, compared with $661 in 2021-22 and $667 in 2020-21.

Silk Laser raised $83.5 million in an initial public offer that was priced at $3.45 a share when it listed on the ASX in late 2020. But the stock is still a long way off that mark, even after the one-day rebound after the strong December-half results.

The network will expand by 10 outlets to 142 when Eden Laser Clinics comes into the stable in early March. Eden Laser operates in NSW and the ACT and was acquired for $10 million.

Mr Perelman said for the first seven weeks of the June half, like-for-like sales were up 10 per cent, which was a good sign. February was traditionally the quietest month of the year after January sales events, but on a historical basis, there had been no discernable drop-off in momentum even in the past fortnight.

He attributed that in part to the strong growth across the category as more people became first-time customers, and regulars quarantined their treatments from any household budget cutbacks.

“Our categories are growing more and more, and there are more and more people who make it part of their normal consumer spending,” he said.

Phones, furniture and fine wine. These are some of the products the country’s biggest retailers expect to restock, even as sales slow this year amid cost of living pressures – but they’re also likely to become cheaper as companies fight to capture consumers.

Patrick Coghlan, chief executive of CreditorWatch, said company announcements indicated softening sales in the first quarter of this year, but that it would likely drag out across the year.

“We’re seeing green shoots of consumers tightening their belts,” he said. “JB Hi-Fi, which is the pin-up child of retail, flagged that their sales were down in January, suggesting the downturn is in small-ticket as well as big-ticket items. The consensus is that there’ll be at least 12 months of pain.”

But in good news for consumers, CreditorWatch chief economist Anneke Thompson said price pressures would likely ease this year.

“We should see further drops in the rate of price growth as data is now being measured off 2022 figures, when price rises had already kicked in,” she said.

Last week, the country’s largest electronics and whitegoods retailer said it anticipated sales to slow this year, despite posting a record double-digit jump in half-year profits.

JB Hi-Fi boss Terry Smart said that there would likely be a ramp-up in discounting as retailers raced to capture consumers amid rising interest rate pressures.

“Customers are still spending more than they were at the same time last year, but are starting to become more cautious with their spending,” he said. “We’re seeing some on-floor discounting start to build, and we expect some of those elevated margins, especially in JB Hi-Fi, return to more historical levels.”

But phones and computers will remain in demand, Smart said, as they have become staples in day-to-day life. “People will continue to spend, upgrade and replace them,” he said.

Sales growth in JB Hi-Fi’s Australian business dropped to 2.5 per cent in January, compared with 4.3 per cent at the same time last year, and 9.1 per cent in the first half.

Online furniture retailer Temple & Webster is also looking towards smaller price tags, after it revealed a 7 per cent slowdown in sales in the first five weeks of the year and a 46.7 per cent drop in first-half net profits.

Boss Mark Coulter said furniture was a “less discretionary” area of spending, but that as the cost of living increases, Temple & Webster will tailor to its core customer base of Millennials, who will be hunting fiercely for the best deals.

“We don’t think there is going to be a mass migration to entry-level products... but definitely we are looking to import and promote products which customers can afford,” Coulter said last week.

Meanwhile, the boss of drinks retailer Endeavour Group said inflation wasn’t putting a cork on people’s drinking habits.

Last month, the company snapped up iconic Margaret River winery Cape Mentelle from luxury goods behemoth Moet Hennessy, as it expects consumer demand to hold up.

Relative to other indulgences, the company’s chief executive, Steve Donohue said, a bottle of gin or higher-end wine “still remains affordable.”

Alcohol prices, up 4.2 per cent in November, remained lower than food prices (up 9.4 per cent) and the broader consumer price index which put inflation at 7.3 per cent.

But Donohue acknowledged that the sales outlook remained uncertain, and that Dan Murphy’s would lean on the lowest price guarantee to give it a competitive edge.

Two businesses benefitting from consumers’ penny-pinching are low-cost retailers Bunnings and Kmart, owned by retail giant Wesfarmers.

The conglomerate’s chief executive, Rob Scott, said customers were chasing value as interest rates took a toll.

“We are starting to see some changes in behaviour – we are starting to see a greater orientation by customers to value,” he said. “We have retained the trust of customers by keeping our prices low – that seems to be resonating with customers.”

Wesfarmers reported a 14.1 per cent jump in first-half net profits last Wednesday, and said that results through the first five weeks of the year had been “broadly in line” with growth reported for the first half.

The slew of retail earnings last week also served as a clear reminder that shoppers still open their wallets for everyday essentials, even when the cost pressures are reaching boiling point.

After negotiating years of COVID-induced retail closures, discount department store Kmart emerged this week ready to welcome budget-conscious shoppers with open arms. Parent company Wesfarmers confirmed Kmart Group’s revenue jumped 24.1 per cent to $5.7 billion in the six months to December.

Kmart boss Ian Bailey said the company has seen customer growth across low, middle and high-income earner demographics.

“We’re seeing strong growth in home goods, strong growth in toys, as well as strong growth across clothing – which is probably different to the [broader] market,” he said.

Record sales figures at Rebel and Macpac operator Super Retail group also showed there’s certain spending that shoppers won’t cut back on. Trends including the return to organised sport and Australia’s wet summer helped drive demand for sporting apparel and rain gear, while Supercheap Auto’s results showed nobody was scrimping on car maintenance.

“If the light bulb is broken in a brake light, I’ll get a new brake light,” chief executive Anthony Heraghty said. “We have characteristics of the business that makes it quite defensive.”

The South African owner of David Jones will hit the exit aglow this month, after reporting revenue growth in the luxury department store for the six months to December that was more than quadruple its annual sales in 2019, and ahead of an expected softening in consumer demand.

Roy Bagattini, chief executive of Woolworths Holdings, said its Australian holdings including David Jones and middle-market clothing retailer Country Road were thriving despite a challenging backdrop.

“What you’re seeing is a level of resilience in these businesses that is somewhat counterintuitive to a lot of the macro contextual indicators and news you see out there,” he said.

“Whether it’s house prices, record high-interest rates or the level of inflation, you would expect those effects to play through into a softening of consumer demand, but we haven’t seen it in the first period of this second half.”

While David Jones’ turnover and concession sales in the half year to December increased by 18.5 per cent compared with the previous year’s corresponding period, the company said it was not comparable because of government-imposed lockdowns in 2021. Instead, it pointed to an 8.8 per cent year-on-year increase in sales in the last six weeks of the half.

The results come after Sydney-based private equity firm Anchorage Capital Partners bought David Jones in December. Anchorage is set to take over the operating business of David Jones by the end of this month.

Woolworths Holdings – distinct from Australian supermarket group Woolworths – purchased David Jones in 2014 for $2 billion. After a challenging period that included write-downs worth more than $1 billion across 2018 and 2019, Bagattini said David Jones was now the most profitable it had been since the company acquired it.

David Jones’ generated more than 9.3 billion rand ($750 million) in revenue in the six months to December, which is more than four times the $170 million it generated over the course of 12 months in 2019. David Jones grew by 13.6 per cent in the first eight weeks of the year.

Meanwhile, sales in Country Road Group grew 8.5 per cent year-on-year in the last six weeks of trade.

Bagattini said that while online sales growth had moderated, customers were increasingly returning to its brick-and-mortar stores, particularly in business districts.

“Online businesses remained strong, but the growth there has come off as customers have gone back into stores,” he said. “We’ve seen a good uplift in foot traffic, especially in our CBD stores.”

But the Woolworths Holdings boss said he expected the trading environment in the second half of the financial year to prove more challenging.

“We do expect a softening overall in terms of demand and some of the lag effect of interest rates and high mortgage payments,” he said.

Bagattini said Woolworths Holdings would maintain the coveted Bourke Street store in Melbourne, but that the company would look to offload it eventually.

“There’s been an extensive amount of interest in the building, and we will float it, but we’re in no rush to sell it anytime soon,” he said.

The chief of Betty’s Burgers’ parent company believes the premium burger chain will outcompete pricier rivals such as Grill’d as it seeks to open 20 to 25 new stores a year in Australia, despite a weakening economy, and kickstart environmental initiatives under new private equity owners.

Nishad Alani, the boss of Retail Zoo, which operates food chains Betty’s Burgers, Boost Juice, Cibo Espresso and Salsas, said consumers sought “affordable indulgence” in times of uncertainty.

“You go to some of the fast-food players – they’ve kind of given up on the whole eating experience, they’ve completely gone takeout, delivery and drive-thru, that’s all they want to do. But that’s not what the core consumer wants to do,” Alani said.

Australia is approaching a spending cliff as festivities of the Christmas and New Year period wear off. With the cost of living hitting 20-year highs, Australians are expected to spend less on luxuries and non-essential goods.

Despite this, Alani said people would remain hungry for establishments more upscale than fast food and believes Betty’s Burgers is poised to do better than other premium burger chain competitors such as Grill’d. Grill’d’s cheapest burger is $12.50, 60¢ more expensive than Betty’s at $11.90, a small sum that Alani said would make a difference to discerning diners.

“We think we provide a better service, a better guest experience, better value, and again, this is up for debate – a better product,” said the Retail Zoo boss, who has taken a swipe at competitors before.

Betty’s Burgers was founded in 2014 in Queensland’s Noosa and has grown to 54 stores. It was one of the few beneficiaries of the pandemic lockdowns, increasing sales through high takeaway volumes.

This month, Sydney-based private equity firm Adamantem Capital signed the papers to acquire a 70 per cent stake in Retail Zoo, making it the company’s third private equity owner in a decade. Retail Zoo has been owned by Boston-based Bain Capital, which also owns Virgin Australia, for nearly a decade after buying it from The Riverside Company in 2014. Adamantem has valued the business at $350 million.

Retail Zoo will focus on aggressive store rollouts around the world and sustainability initiatives such as packaging and waste reduction.

“We plan to open 40 to 50 stores every year as we have for the last couple of years, and we expect half of those will be in the domestic market and half of them will be in the international market,” said Alani.

Adamantem Capital managing director Georgina Varley said it would otherwise be “business as usual” for Betty’s Burgers and Boost Juice staff and customers and expressed confidence the brands would perform well in tighter economic conditions.

“They’ve gone from eight stores to 54 stores over the past five years, and we’re keen to continue the store rollout, particularly as the brand grows,” Varley said about Betty’s Burgers.

“What we’ve seen is that Boost is a very resilient brand. It’s been around for 20 years and has weathered lots of different changes over time, and it’s continued to grow through COVID, it rebounded very well.”

“Similarly, Betty’s is a fast, casual brand which is well-positioned to be resilient through potentially tougher economic times.”

Electronics and furniture retailer Harvey Norman Holdings has reported a 15 per cent fall in profits in its December half.

The company owns and operates Harvey Norman, Domayne and Joyce Mayne brands.

Total system sales revenue for the year was $4.98 billion while company-operated revenue reached $1.47 billion.

EBITDA fell 8 per cent to $694 million while tax-paid profit slumped 15.1 per cent to $365.9 million.

The group’s overseas retail profitability declined 22.5 per cent to $28.9 million primarily due to difficult trading conditions in New Zealand while its total assets increased to $7.81 billion, up 7.8 per cent during the half.

Harvey Norman chairman Gerry Harvey said the business will continue to assist each franchisee with the necessary tools and digital structure to invest in their customers.

“Amid the macroeconomic headwinds of the past year, we have grown our integrated retail, franchise, property and digital business across eight countries to nearly $5 billion in system sales for the current half-year period.”

The company plans to recommence its offshore expansion plans, growing its store footprint in Malaysia to 80 stores by the end of 2028.

Listed property group Mirvac has taken a stake in online discount fashion retailer The DOM as a part of a strategic partnership.

The DOM, which pitches itself as an Australian version of The Outnet, inked the partnership earlier in the year.

It would allow Mirvac centres to offer their retail partners the ability to list their stock on The DOM, in a bid to expand their customer reach and add a new revenue stream via the digital extension.

In turn, new brands that are listed on The DOM but don’t have a physical presence yet could be introduced via Mirvac centres.

The investment and strategic partnership for The DOM comes less than three years into its life. The business’s co-founders include Hilton and Justin Seskin, who were investors in Rebel Sport and later brought Topshop to Australia.

The DOM kicked off with 150 brands, and has grown to more than 250 brands since. It stocks brands like Alice McCall, Manning Cartell and Superdry.

The boss of pizza giant Domino’s has admitted the company failed to get the balance right when it upped delivery prices to counter inflation after the business reported first-half profits dropped by more than 20 per cent.

The company said its plans to fight inflation “had not been optimal” in the first half, with decisions to increase product prices and delivery and surcharge fees impacting how often customers ordered, particularly in overseas markets such as Japan and Germany.

“First and foremost, we actually got delivery pricing wrong, not carry-out pricing,” chief executive Don Meij said.

He said while shoppers had increasingly returned in-store to pick up their takeaway orders, price increases for delivery had hurt how often customers ordered pizza.

In Europe, the company put in place price increases for “bundled menu” items, some which represented a jump in price of more than 10 per cent, while in Australia and New Zealand Domino’s introduced a 7 per cent delivery service fee on orders.

The ASX-listed fast food business revealed on Wednesday that its sales had slipped by 4 per cent for the six months to December, and net profits had declined by $19.6 million to $71.7 million.

But Meij said the business had plans to help steady the ship, including a move to “flexible vouchers” that give customers more choice in what is included in a meal deal.

“Consumer sentiment is lower, but the fast food industry is buoyant,” he said.

Domino’s has been contending with rising costs for ingredients and business operations over the past several months, but Meij said he believed conditions were moderating.

“We still see inflation but it is nowhere near what we saw [last year],” he said.

Despite these assurances, investors sold the stock off heavily on Wednesday morning, sending it plummeting 20 per cent to $57 by 11.20am.

Analysts were wary after the business confirmed sales growth across the second half had been less than anticipated, and growth would be below its medium-term outlook of between 3 and 6 per cent.

The company confirmed that operations in Europe had been hit particularly hard during the half, with inflation impacting consumers and Domino’s delivery price increases resulting in fewer customer orders in France and Germany.

“Domino’s has a challenging six months ahead. Any franchising system needs to balance the health of franchisees and shareholders. In the near-term, franchisees will need more support,” MST Marquee analyst Craig Woolford said in a note to clients.

UBS analysts said there were risks ahead.

“Given [second half] sales headwinds and weaker [first half] net profit after tax, we see downside risk to FY23 net profit guidance,” Shaun Cousins said on Wednesday morning.

The company declared an interim dividend of 67.4 cents, down from 88.4 cents during the same time last year.

Australian retail sales in January surged 7.5 per cent year on year – and 1.9 per cent over December, reflecting a strong post-Christmas sale season. 

Ben Dorber, head of retail statistics with the Australian Bureau of Statistics (ABS), said January’s rise followed a 4 per cent month-on-month fall in December and 1.7 per cent rise in November. 

“Looking through this volatility shows that turnover is at a similar level to September 2022, and on average, growth has been flat over the past few months,” he said.

“November, December and January are the most seasonal months of the year, with retail activity heavily affected by the Christmas period and January holidays. This has been heightened by an increase in the popularity of Black Friday sales and growing cost of living pressures combining to drive a change in usual consumer spending patterns.”

Australian Retailers Association CEO Paul Zahra described the figures as “a strong result” – especially for apparel retailers and department stores, who had worked hard to clear their summer inventory.  

“There’s no doubt that an impressive Boxing Day trade certainly bolstered these sales, with the shoppathon a fixture on the January calendar.”

However, he cautioned that while the results were impressive, the cost of doing business and gross margins for many retailers remains a serious concern.  

Significant year-on-year sales increases were recorded by cafes, restaurants and takeaway businesses – up by 26.3 per cent – clothing and footwear – up by 17.5 per cent – and department stores (up 16.6 per cent).  

“The sales recorded by restaurants and cafes are particularly strong,” said Zahra. “It is clear the appetite for dining out has been boosted after the challenges of the pandemic.” 

The only retail category to show a decline in year-on-year sales was household goods, down by 1.1 per cent, reflecting record sales during the pandemic when all things at home were in hot demand, said Dorber.  

Footwear conglomerate Accent Group has reported a 160% increase in its digital sales in the first half of FY23 compared to the same time in FY20. This is despite a drop from the first half of FY22.

The drop in online sales has been noted in other recent trading updates, including Universal Store and Best & Less, matched with a rise in bricks-and-mortar sales.

In the first half of FY22, the Group accrued a record online sales of $159.9 million, triple the size of 1H FY20 results of $51.6 million. In 1H FY23, the Group’s online sales dropped to $134 million, which is still above the results in both the first half of FY21 and FY20.

Its digital sales contributed to 18.9% of the Group’s total sales in 1H FY23, with total sales up 39% on the same period last year to $825 million.

Compared to pre-pandemic (1H FY20), Accent Group’s fulfilled 106.4% more online orders in 1H FY23, with a conversion rate increase of 8.7% in the same period, and an average order value increase of 21.5%.

The Group also added 300,000 new contactable customers to its base, which now sits at 9.6 million, with a goal to reach 10 million in the year ahead. The total contactable customer base has more than doubled since FY19.

Accent Group said Platypus, Skechers and Hype in particular have continued to grow their customer base and drive repeat customer behavior, alongside the launch of a new customer data platform.

Its loyalty program now has a total membership of 7.4 million across The Athlete’s Foot, Hype DC, Platypus, Merrell and Skechers.

Accent Group CEO Daniel Agostinelli welcomed the results, citing the continued focus on customer, new product, full margin sales, and return on investment as the key drivers.

“What is most pleasing is the strength and consistency of performance across our large core banners, including Skechers, Platypus, Hype DC, The Athlete’s Foot (TAF), Vans and Dr Martens, along with the progress that we have made in our new banners now that trading conditions have normalised,” Agostinelli said.

“One of the key initiatives for H1 was driving the profitability of the Accent Group digital business. Whilst sales were down on last year due to the lockdowns in 2021, we have improved our digital business and online EBIT was ahead of last year.”

Meanwhile, the group opened 53 new stores across its markets, transitioned 13 stores from discontinued to continuing and closed 10 stores where the required rent outcomes could not be achieved. The group now holds 805 stores, with an estimated total of 825 to be achieved by FY23 end.

In the start of the second half of FY23, like-for-like (LFL) sales for the first seven weeks were up 16% on the prior year. Compared with FY20, LFL sales were up 16.1%, a compound annual growth of 5.1%.

“Whilst we recognise that there is some uncertainty in the economic outlook, to this point we have not yet seen any significant change to consumer spending in our categories,” Agostinelli said. “Many of our brands target a younger customer demographic who tend to be less impacted by interest rates and cost of living pressures.

“In conclusion, I am pleased with the ongoing progress that has been made on our key growth strategies as we continue to build a strong, defensible business in Australia and New Zealand.

“Our portfolio of global distributed brands, owned vertical brands, integrated digital capability and large store network are core assets of the group and position the company well for growth into the future.”

Bedding and homewares retailer Adairs has reported strong first-half sales across its two largest brands as customers resumed shopping in stores rather than online after pandemic restrictions eased.

The company owns and operates the Adairs, Focus on Furniture and Mocka brands.

For the 26 weeks to December 25, sales increased 34.1 per cent to $324.2 million while statutory tax-paid profit reached $21.8 million, up 23.9 per cent.

Adairs’ sales were up 13.1 per cent to $220.4 million with store sales growing 22.9 per cent however, online sales fell 7.4 per cent to $58.5 million.

Focus on Furniture achieved $78.6 million, up 20.1 per cent, with online sales down to $5 million after all stores remained open during the half.

Mocka sales fell 26.18 per cent to $25.1 million as the brand cleared excess stock and resolved operational issues from the second half of the last financial year.

Mark Ronan, MD and CEO of Adairs Limited, said the continued sales growth highlights the “strength of our brands, the critical role of our exclusive product, and the resilience” of the Australian consumer.

“Across the brands, we are focussed on our operational execution, continued development of exclusive on-trend products and growing our membership bases, putting us in a good position to manage what is likely to be a challenging trading environment in the second half.”

In the first seven weeks of the second half, group sales grew 1.8 per cent as cost-out programs were implemented to manage the “potential impact” of a weaker economic environment.

Department store chain Myer is seeking to divest three of its best-known clothing brands and has hired KPMG Corporate Finance to run a sale process, Street Talk can reveal.

It is understood high-end fashion label Sass & Bide – on which Myer spent $42.3 million to purchase a two-thirds stake in 2011, in a move that caused rival David Jones to dump the label – is on the block, alongside Marcs and its sister brand, David Lawrence.

Major local fashion labels have becoming increasingly attractive to international buyout groups and cashed-up family offices, culminating in the purchase of a majority stake in Zimmerman by Advent International last year in a deal that valued the brand at as much as $1.75 billion. Gina Rinehart and Andrew Forrest have also splashed out, acquiring heritage brands Driza-Bone and RM Williams respectively.

A sale of the three high-profile brands would mark the next stage in an overhaul of the struggling department chain, which has been shedding stores as it attempts to reposition the business under new chairman Ari Mervis.

KPMG started contacting potential buyers just before Christmas, and a sale flyer was sent to interested parties in the past fortnight. The corporate adviser’s consumer team, led by dealmaker Luke Lawrentschuk, is expected to run a two-stage process. The three brands make about $100 million in turnover, sources said.

Myer, capitalised at $620 million, has launched the sale to continue to drive strategic alignment, with the company keen to move away from owning vertical brands, sources said. Of note, Sass & Bide is being sold as a separate entity to Marcs and David Lawrence.

WAM Capital portfolio manager Oscar Oberg told this column at the weekend that the mooted sale process was “strategically sound” and would allow Myer’s board to “focus on what they do best which is department stores”.

“We will see what management present at their result, but these brands may have been impacting earnings, so any sale would be welcome and would strengthen the balance sheet,” Oberg said.

On trend

Sass & Bide, now wholly owned by Myer, was founded in 1999 by friends Sarah-Jane Clarke and Heidi Middleton. It’s proven incredibly resilient in the face of foreign retail giants, like Zara and Topshop, invading Australian shores and has benefited from an expansion of the label’s freestanding and concession store network. Marcs, founded in 1984 by the late Mark Keighery, was once the retailer du jour for menswear, famous for its colourful cotton shirts and well-tailored suits.

Outgoing CEO John King has spent the past six years implementing his “customer first” plan, shrinking floor space and closing stores, helping transition Myer into a profitable business that has returned to paying regular dividends. The shares are trading at 74¢, above where they were when King took over in 2018 when the stock was sitting at 40¢.

On February 6, Myer handed down a trading update that surprised on the upside, forecasting inte

rim sales down 3 per cent to $1.829 billion, or flat on a same-store basis. First-half net profit for the 26 weeks ended January 27 will be $49 million-$53 million, albeit dented by more discounting and inflationary cost pressures.

Myer operates 56 department stores and its online presence now represents more than 20 per cent of total sales of $3.36 billion in fiscal 2023. Its loyalty program, Myer one, has more than 7 million members.

Lawrentschuk – widely considered the consumer sector’s go-to adviser – is expected to call for first-round bids in the first half of March. Clayton Utz is on legals, sources added.

Luxury bags, shoes, clothing and jewellery are flying off the shelves at malls across the country even as rising interest rates hit consumer spending on more mundane items, with the mega Chadstone mall in Melbourne’s south-east the star performer.

Luxury retail sales for retail landlord Vicinity Centres soared by 55.8 per cent in the six months to the end of December to hit more than $1 billion annually for the country’s second-largest shopping centre owner and manager, which partly owns the Chadstone mall.

That helped underpin the revaluation of Chadstone to $3.25 billion, up 1.7 per cent. Vicinity owns the shopping centre along with private property billionaire John Gandel. The mall also has a luxury hotel managed by Accor, and is the new home to Officeworks’ head office.

Vicinity’s recently appointed chief executive Peter Huddle said the investment in the luxury segment at Chadstone, which now boasted more than 40 upmarket brands, by the landlord and its tenants had paid off, and there were plans to extend to the offerings.

He said that while there was evidence of a softening in the rate of sales growth across the 60 shopping centres the company managed and owned, he raised its earnings forecast to between 14 and 14.6 cents a unit for the full year, up from between 13 and 13.6 cents a unit previously. Vicinity’s shares closed 2 per cent higher at $2.05 on the news.

Chadstone’s success story aside, Vicinity reported a 73 per cent fall in statutory net profit overall to $176.3 million as it wrote down the value of its shopping centres in the consumer spending slowdown by $109.2 million. The more telling measure for real estate investment trust earnings, funds from operations, which excludes valuation volatility, rose 24.1 per cent to $357.1 million.

“Our growth in luxury is the result of our deliberate investment strategy to enhance our luxury landlord credentials,” Huddle said.

“Pleasingly, existing luxury brands are demanding more space to extend and elevate their product offerings, and we have a pipeline of potential new brands to bring to our premium centres in the short to medium term.”

In Sydney, Vicinity will look to add more luxury shops to its Chatswood Chase mall currently undergoing a $210 million expansion and refurbishment to cater for the demand for luxury brand items from upper North Shore shoppers.

Huddle called the spending on luxury “extraordinary”, adding that the sales growth in the sector since the lockdown period has been “exceptional”.

Many well-known brands such as Hermes, LVMH, Cartier and Chanel have invested in opening larger stores with more offerings from handbags to apparel and accessories.

“The brands have also increased the appeal of their offer to a much broader clientele, including a young clientele, and expanded into the male side of luxury,” Huddle said.

Ray White head of research Vanessa Rader said despite growing interest rates being expected to dampen spending, the S&P Global Luxury Index has recorded its greatest returns since April 2022.

Rader said it highlights the growing appetite for these luxury brands by consumers, both domestically and from overseas visitors.

“The growing emphasis on these establishments within our CBD brings a new level of quality and activity back to the city after a difficult few years and now represents 23.4 per cent of our street-fronted shops within our prime retail core,” she said.

Sequoia Asset Management’s Winston Sammut said Vicinity’s half-year result came in ahead of expectations as earnings benefited from better cash collections and the absence of lockdowns over the period.

Rent collections were strong, receiving 97 per cent of billings compared to 92 per cent in the corresponding period with speciality stores and mini majors, such as JB Hi-Fi, delivering sales growth of 21.7 per cent.

But Vicinity CEO Peter Huddle warned that “whilst guidance has been upgraded, the full-year result may be impacted by a fall in consumer confidence on the back of ongoing interest rate rises.”

Huddle said the factory outlet division had strong sales growth over the half and while capital cities had seen workers return to their CBDs, stores such as the QVB and The Strand in Sydney still had some lag in turnover.

“From a consumer demand perspective, the Australian retail sector continues to be a benefactor of an extremely tight employment market and robust household income growth and savings rates,” Huddle said.

“That said, we are mindful of the impact of rising interest rates and increased costs of living on Australian households in the near term, and we expect the rate of retail sales growth to moderate in the second half of the 2023 year.”

Vicinity reported an interim dividend of 5.75¢ payable on March 7.

David Jones will host a series of activations across its inner-city stores as part of World Pride 2023, including the launch of a new visual merchandising platform. 

The World Pride events will take place at Elizabeth Street and Bondi Junction locations from February 23 to March 5. 

Headlining the schedule is Briefs Factory, a diverse dance troupe who will perform across both locations as well as David Jones' Elizabeth Street windows. 

The performance will mark the launch of David Jones’ Our Window, Your Stage series, which will turn the windows of the Elizabeth Street and Bondi Junction stores into animated performance platforms.

David Jones Elizabeth Street store manager Wendy Rafferty said live model installations and DJs from the LGBTQIA+SB community will also run throughout the month. 

“For David Jones, Pride month is a time where we can reinforce our commitment to LGBTQIA+SB inclusion within our stores and beyond, celebrating acceptance and allyship, and championing authenticity.

“Through a series of unmissable events and in-store experiences, our community will be encouraged to imagine a world full of possibility, where individuality is celebrated and the voices of the LGBTQIA+SB community are heard.”

The Elizabeth Street store will feature a glitter rainbow booth at its entrance, while brands such as Calvin Klein, OPI, Dyson, Ralph Lauren, Marc Jacobs Fragrance, MAC and Bonds offer limited-edition goods, events, gifts with purchase and personalised products.

Visual merchandising assistant Craig Barrie will also join the schedule as alter ego 'Luna Laurent' (pictured). As a member of the LGBTQIA+SB community, Luna will make her editorial debut in the February issue of JONES Magazine, alongside many other members of the queer community.

“To me, Pride is about standing together, united and lifting each other up. It’s the perfect opportunity to unapologetically celebrate the queer community and all that we are, having conversations about our journey and where there is opportunity for further growth, support, and progression. To feel safe and supported as a queer in the workplace at David Jones has given me the ability to be exactly who I am, free of judgment - which is something I’m incredibly grateful for and why I am proud to work here,” Barrie said.  

David Jones stores around Australia will take part in the national Pride campaign, with rainbow store displays and team members given the option to wear a Pride badge.

David Jones has 43 department stores across Australia and New Zealand as well as an eCommerce site.

Baby Bunting has reported a 12.2% increase in in-store sales for the first half of FY23, now representing 80% of total sales.

The baby retailer, which stocks apparel from Bonds and Disney, saw eCommerce sales drop as a total of percentage of sales from 23.8% to 19.7%.

Touchless Click & Collect also fell in the first half by 30.2% compared to prior corresponding period, as consumers revert to pre-pandemic shopping behaviours.

However, it is still up by around 225% over a three year period.

Baby Bunting's pro forma net profit after tax was at $5.1 million, down 59% on the prior corresponding period (1H FY22), with total sales being 6.6% higher ($254.9 million) than prior period.

Baby Bunting CEO & MD Matt Spencer said its sales have grown by 36.7% over the last three years, noting that all Baby Bunting stores remained open during the pandemic.

“As life has normalised, the market share gains made through COVID have predominantly been held onto,” Spencer said.

“Post-COVID, our product segment performance is normalising. Nursery essentials – being a core category – continue to grow strongly and were up 12.7% in the half (over three years, this category is up 39.4%).

“Consumer staples, which are more widely available across general retail, saw a decline of 4.7%. Play time items (including Play gear) declined 3.6% in the half, reflecting price deflation and reduced demand after the pandemic.”

Meanwhile, Baby Bunting is driving investments into new markets, reporting a pro forma cost of doing business of 32.4% of total sales - an increase of 222 basis points on the prior corresponding period. It also cited significant wage inflation as contributing factor for the rising cost of doing business.

The company is preparing to launch its Baby Bunting Marketplace (to be available via its eCommerce site) in Q4 FY23, saying it presents a significant revenue opportunity. Baby Bunting said it is working with a number of suppliers to develop the offer, as it plans to launch the marketplace with 1,000 additional products.

The company also implemented a new advanced order management system and a time and attendance system, incurring a $2.2 million cost. Baby Bunting said that benefits are being realised from improvement in order management, and its ERP/POS replacement project is expected to move to vendor selection towards the end of FY23.

The company also added five new stores to its portfolio in the first half of FY23, including the expected launch of its second New Zealand store in Christchurch to open mid-2023. New Zealand is a relatively new market for the brand having only opened its first store there in mid-2022.

Consumer demand for cool sporting apparel, car maintenance products and wet weather gear have helped power Rebel and Supercheap Auto owner Super Retail Group to record sales in the six months to December.

The retailer, which runs a range of brands including sports goods brand Rebel, Macpac and Supercheap Auto, said its sales climbed 15 per cent to $1.96 billion in the six months to December. Profits were up by 38.1 per cent to $144.2 million.

Chief executive Anthony Heraghty said Rebel’s focus on partnering with popular global sporting brands had helped drive sales, while everyday essential spending on car products and strong demand for raincoats in this wet summer helped boost demand across Super Retail’s other major brands.

The group confirmed on Thursday that the sales momentum from the December half had continued into January.

Rebel’s performance fuelled the overall numbers, with year-on-year sales up 13 per cent to $682million for the half, and profits before tax up 23 per cent to $84 million.

Heraghty said the resurgence of organised sport after the pandemic is helping the brand, while the group’s new “RCX” (Rebel customer experience) store formats are offering a more interactive experience focused on more popular global sports brands in football and basketball.

“The key thing is what we’ve been able to do is partner with global brands to ensure the products we’re giving customers is, frankly, the cool stuff,” he said.

The company’s basketball goods sales were up 126 per cent compared with before the pandemic in 2019, and now make up 8 per cent of all sales. Rebel’s football goods segment has grown by 60 per cent since 2019 and now makes up 9 per cent of total sales.

“We’ve caught the zeitgeist in terms of the basketball trend,” Heraghty said.

The company was clear on Thursday that although it had posted a strong half of sales, it faces the same challenging macroeconomic conditions that the rest of the retail sector is grappling with.

Heraghty said that one positive for the company was that brands such as Supercheap Auto were more defensive because they focused on lower-cost essentials such as car maintenance, which consumers would not stop spending on in a slowdown.

“If my light bulb is broken on the brake light, I’ll get a new brake light,” he said.

Children’s sporting goods are also one of the last things a family will cut down on if things are tight – and even if shoppers are looking to scale down, this usually involves moving away from global brands towards more budget-friendly options.

“You might not buy the Lebron [branded sneaker], but you might buy two or three [price points] down,” Heraghty said.

Supercheap Auto sales were up by 18.3 per cent for the half to $728.6 billion, while BCF saw a 7 per cent change to $447.6 million.

Hiking and outdoor goods brand Macpac bounced back from the COVID years with sales growth of 54.8 per cent to $101.4 million. Heavy rainfall thanks to La Nina helped drive strong demand for raincoats and other wet weather gear.

The group declared an interim dividend of 34 cents per share, up from 27 cents this time last year.

Super Retail was hit with court action brought by the Fair Work Ombudsman last month over claims it engaged in serious breaches of the Fair Work Act through alleged underpayments which occurred between 2017 and 2019. 

The company told investors on Thursday that the case was still in its early stages, but it has increased its provision for what is potentially payable as a result of those proceedings by $8.8 million, bringing the total provision to $14.6 million.

Its shares were 4.3 per cent stronger to $12.48 in early afternoon trading.

Wesfarmers boss Rob Scott says the performance of struggling e-commerce marketplace Catch is unacceptable, but the retail giant is tipped to face an uphill battle to turn around the brand, which stands out as a sole blight on its balance sheet.

Industry analysts grilled the Wesfarmers executive team last week about how much pain they were prepared to put up with when it came to Catch, which has proven a headache since shortly after  Wesfarmers bought it for $230 million in 2019.

Wesfarmers confirmed last week that the gross transaction values on the Catch platform declined by 26.8 per cent in the six months to December, and the business posted a loss of $108 million for the half.

That included $33 million in restructuring costs as Wesfarmers embarked on redundancies and asset write-offs within the business, while moves were under way for a widespread reduction of costs.

Management blamed the poor results on a slowdown in e-commerce demand after COVID, which resulted in “surplus inventory and an unsustainable cost base” within the business.

Catch had invested heavily in inventory, fulfilment capacity and staff during the coronavirus-induced surge in online retail, but now spending conditions are slowing.

“We clearly over-invested,” Scott told analysts.

Stock watchers are running out of patience with the operation, with Wesfarmers’ initial investment in the company together with its cumulative losses now approaching $500 million.

“What can we as investors or market followers expect going forward – how much pain you prepared to put up with?” Bank of America’s David Errington asked Scott on Wednesday.

Scott said he believed earnings in the business would improve considerably in the second half of the 2023 financial year, but he agreed that Catch’s fortunes would have to turn around swiftly, or Wesfarmers would have to cut back on investing in the business.

“It’s not good enough, it’s unacceptable, we’re not satisfied with this at all. You can expect that we are taking very serious action to improve the financial performance,” he said.

“It’s going to be a disappointing year for Catch, but it will need to improve, it’ll need to improve materially in the years ahead, or we just simply won’t keep investing at the current level.”

Wesfarmers says its short-term goals include reducing overhead costs, which includes a reduction of its head count as well as running clearance activity to get rid of excess stock over the next few months.

The group will do this during a period in which pure-play online retail is slowing.

Online-only furniture retailer Temple & Webster was one example of an e-commerce business punished by investors last week, with shares plummeting 25 per cent after the company revealed a 46 per cent drop in half-year profits.

This could make the task of Catch’s turnaround all the more difficult, analysts fear.

“We believe the turnaround will be challenging given the very strong competition Catch faces from larger global marketplaces and omnichannel retailers, and the sharp shift in customers from online back to stores,” Citi analyst Adrian Lemme said in a note to clients.

Barrenjoey moved its price target from $49 to $48 after Wesfarmers’ results last week, pointing out that although the company delivered a strong first-half result, Catch’s growing losses were a lowlight.

“We lift our department stores and healthcare forecasts on better-than-expected results, which is more than offset by higher Catch losses (up from $50 million to $180 million), with Officeworks and [energy business] WESCEF lowered slightly,” consumer analyst Tom Kierath said.

Wesfarmers shares finished last week up by more than 3 per cent, after sharing more positive trading outlooks for discount department store Kmart and DIY giant Bunnings.

Catch has reported a loss of $108 million for the first half of the financial year, including restructuring costs of $33 million relating to inventory provisions, redundancies and asset write-offs. 

The Wesfarmers-owned online marketplace saw gross transaction value decline by 26.8 per cent during the period. 

Wesfarmers managing director Rob Scott said the result, for the half-year ended December 31 2022, was due to internal and external factors.  

“The disappointing financial performance in Catch reflected operational and execution challenges in addition to the broader decline in online retail demand during the period. 

“Catch’s earnings were impacted by significantly lower margin in the in-stock business due to increased clearance activity, as well as higher fulfilment and delivery costs associated with layout and process inefficiencies during commissioning of the new Moorebank fulfilment centre in New South Wales."

Catch has appointed a number of senior leaders in a turnaround strategy, including former Cotton On Group eCommerce head Brendan Sweeney in October 2022. 

"Restructuring activities to reduce overhead costs were commenced in December 2022 and additional commercial controls on range and inventory management have been implemented," Scott confirmed. 

Wesfarmers acquired Catch Group for $230 million in 2019.

Kmart Group has reported a 24.1 per cent increase in revenue for the first half of the financial year, generating $5.7 billion in the six months to December.

The Wesfarmers-owned group, which includes Kmart and Target, has seen earnings increase 114 per cent to $475 million.

Wesfarmers MD Rob Scott said retail trading results through the first five weeks of the second half are broadly in line with this result, supported by strong growth in areas most affected by COVID-related disruptions in January 2022.

“Kmart Group’s significant earnings result reflected strong operational execution, with comparable sales and volume growth, in addition to the impact of a normalisation in trading conditions following significant COVID-related restrictions in the prior corresponding period."

Kmart Group is positioned to meet changing consumer demand this year, as elevated inflation and higher interest rates result in more value conscious households.

“Customers continued to respond positively to Kmart’s lowest price positioning, and sales growth was achieved across all categories," Scott confirmed. 

"Target’s performance reflected continued improvements in the product offer, particularly in the focus categories of apparel and soft home.

"With more normal trading conditions during the half, the full benefits of the significant network change program undertaken across Kmart and Target were also able to be realised.

“Kmart Group continued to improve the digital experience for customers during the half, with ongoing investments in the Kmart and Target apps, and the launch of instore benefits for OnePass members.

"Kmart also continued to progress strategic initiatives to profitably grow its share of wallet, develop its data and digital assets, and digitise its operations.”