Woolworths to be a star of profit reporting season, fashion retail struggles

Updated

Woolworths is expected to be one of the stars of profit-reporting season as some other retailers struggle in a sluggish economy.

One of the biggest battlegrounds in retail is between newly-energised Woolworths and Coles.

Coles boss John Durkan, outwardly at least, is not bothered by the resurgence in his biggest competitor.

"There's plenty of opportunity for us if we deliver for our customers and give them low prices, high-quality product and make it easy for them to shop. There is no doubt there's enough trade out there for everyone," he said.

Coles' response to Woolworths is to step up its lowering of prices, which, if its first half results are any guide, also lowered its profit.

"I can't give you an insight on our results, our results are coming up, the year end's just finished so I am not allowed to do that. But I can assure you investing in lower prices over a long period of time will ensure that Coles is a growth company," Mr Durkan said.

With the nightmare of hardware chain Masters now behind it, Woolworths is tipped to unveil a profit of around $1.5 billion — after last year's loss of $1.2 billion.

"Woolworths has done extraordinarily well in the last 12 months with growing their market share in the food sector," Morningstar retail analyst Johannes Faul said.

However, Mr Faul makes the point that Woolworths result would be even stronger without the price war with Coles.

"The top line is growing, the sales are growing, but the heavy discounting will have an impact on the profitability of those sales," he said.

Ditto Wesfarmers-owned Coles.

Away from food and liquor, shareholders in Australia's retailers will be hoping last week's bad news from struggling department store Myer is not a portent of things to come this reporting season.

"We've seen real retail turnover only increase by about 1.5 per cent, which is around the rate of population growth, so after inflation we are not getting any growth in retail sales per capita," retail partner at Deloitte Access Economics David Rumben said.

"It wouldn't surprise me to see some poorer results come through because the market environment has been pretty flat and we know that competition has also been pretty intense."

Fashion now out of fashion

Nowhere has that competition been more intense than in fashion retailing where share prices reflect that fashion is now out of fashion.

The write-down of its Top Shop and Sass and Bide concessions has helped Myer shares down 40 per cent in the last 12 months.

Specialty retail, which among its brands includes Rivers, Millers and Katies, is down 16 per cent.

Even Solomon Lew's Premier Investments, with Peter Alexander, Just Jeans, and Jay Jays, is off 15 per cent.

"On the physical store space we've seen the multi-national franchises expanding their store networks in Australia, I'm thinking H&M, Zaras, Uniqlos of the world, but also online has obviously taken a lot of share," Mr Faul said, outlining some of the challenges facing fashion outlets.

While Myer has once again thrown the spotlight on the department store space — privately-owned David Jones suffers from similar pressures — and among discount department stores, little change is expected at the other strugglers, Big W and Target, leaving only Kmart as the star.

"That model has to continue to evolve and change and we have to see investors with confidence to stay the journey," retail strategist Brian Walker, the founder of The Retail Doctor, said.

The continued strength in the Australian dollar should have helped the earnings of stores like Harvey Norman and J-B Hi Fi, who sell predominantly imported goods.

They should also have benefited from the east coast housing boom, as should retailers like furniture maker Nick Scali.

"That's brought with it a lot of extra housing activity, in terms of new housing developments and people switching between houses and there's a deal of retail spending that's complimentary to that, so spending on furniture, white goods and the like," Mr Rumbens said.

Nick Scali will be the first of the listed retailers to report, on August 10, followed by J-B Hi Fi on the 14th.

Topics: business-economics-and-finance, industry, retail, australia

First posted