Aussie retailers in for more pain as high interest rates squeeze spending - Citi

Harvey Norman Holdings

06/07/2023 07:25

July 6 (Reuters) - Australian retailers are in for a
sombre period this fiscal year as high interest rates squeeze
household budgets, especially for discretionary spending,
Citigroup said on Thursday, with expected further rate hikes
likely to dent confidence even more.
    The brokerage cut its fiscal 2024 earnings forecast for
electronics retailer JB Hi-Fi  JBH.AX , fashion retailer Premier
Investments  PMV.AX , auto parts retailer Super Retail  SUL.AX ,
and retail conglomerate Wesfarmers  WES.AX .
    Australia's rates have surged by 400 basis points to an
11-year-high of 4.10% in just over a year and that, Citi
estimated, lowered household budgets by A$18 billion ($12
billion) in fiscal 2023 and will affect budgets by A$23 billion
in the fiscal year that started on July 1.
    "It appears the two recent rate rises (in May and June)
following the April pause has been the final straw, pushing some
consumers to restrain their spending," Citi analysts Adrian
Lemme and James Wang wrote in a note.
    They estimate the high rates have pushed up net household
interest expense by around A$30 billion over five years through
2024.
    "Given Citi forecasts another two rate rises, we think
confidence will remain depressed for now," the analysts said.
    Last month, UBS also warned of a significant slowdown in
consumer spending in fiscal 2024 due to a higher cost of living
amid slowing global growth.
    Consumer firms ended Thursday deep in the negative
territory, with heavyweight Wesfarmers losing 2.8%, while JB
Hi-Fi, Harvey Norman  HVN.AX , and Domino's Pizza Enterprises
 DMP.AX  losing between 1.8% and 3.2%.
    Coles Group  COL.AX  and Woolworths  WOW.AX  were down less
than 1%.
    The silver lining in Citi's report was that it expects
retail conditions to rebound in fiscal 2025 due to tax cuts this
fiscal year, a growing population driven by migration, and the
expected recovery in housing prices over the next half-year.

Citi's latest recommendation, price target, and earnings view:
        Company         Rating      Price      Last share            EBIT (A$ MLN)
                                 Target (A$)   price (A$)   
                                                              FY23       FY24       FY25
      Coles Group         Buy       20.20        18.14       1,990.0    2,048.6    2,234.9
       JB Hi-Fi         Neutral     48.00        44.11        788.6      560.7      571.3
  Premier Investments   Neutral     22.40        20.18        343.5      265.3      294.4
     Super Retail       Neutral     12.00        11.82         433       342.3       349
      Wesfaremers        Sell       40.00        48.41       3,672.0    3,548.0    4,181.0
      Woolworths          Buy       42.20        39.19                  3,458.4       
 ($1 = A$1.5011)

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AU retail stocks Australia    https://tmsnrt.rs/3NEpuB0
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 (Reporting by Sameer Manekar in Bengaluru; Editing by Savio
D'Souza)
 ((Sameer.Manekar@thomsonreuters.com; Twitter: https://twitter.com/sameer_manekar))