New Zealand retailers' sales do not tell the whole story

By Peter V O'Brien

Friday 22nd March 2002

Listed retail companies' profit performances and share price movements reflected strong growth in retail sales over the past six months.

The table shows the changes in share prices and percentage profit gains (declines) since The National Business Review last reviewed the sector in September last year.

Retail sales volumes increased 2.1% in the December quarter on a seasonally adjusted basis, which took account of the annual Christmas period distortion.

Sales in January were 0.5% higher than December, again seasonally adjusted. There may be a suspicion that retailers' higher sales are subject to price increases, particularly for imported goods which reflect the exchange rate.

Institute of Economic Research economist John Baginall, who produced the latest NBR Tracking the Economy column on retail sales (February 22), says the growth figures in that article were expressed in constant prices.

It did not invalidate the point that reported sales from listed companies were reported in dollars of the day, unadjusted for price increases from whatever source.

New Zealand retail sales do not tell the full story for the listed companies, because several operate in Australia, where a combination of intense competition and a different economic environment affect the global figures.

Percentage profit changes in the table were adjusted for unusual items. Michael Hill International's profit for the six months ended December was adjusted by deducting the surplus on sale of the company's head office building.

The jewellery retailer included the gain in its reported profit, although showing clearly in both the segmented results and in the accompanying comment it was a specific item.

Michael Hill's business is the sale of jewellery, including the company's manufactured goods.

It is not a property company, nor a property investor taking a one-off deal to account, irrespective of the tortuous definitions of usual and unusual items in Statements of Standard Accounting Principles (SSAPS).

The company still did well in its basic business, despite a tough trading environment in Australia, where sales increased 8.5% in the past six months - expressed in New Zealand dollars compared with a 13.9% gain in New Zealand.

Operating profit here was 22.5% higher than in the corresponding period of the previous year but declined 10.2% in Australia.

Listed retailers operate in different sectors of the economy. Their diversification is paradoxically a good guide to general economic trends because they reflect consumer spending and confidence across a range of activities.

Only the misguided could find a common element in the food business of Restaurant Brands, Hallenstein Glasson's clothing sales and Pacific Retail's activities in appliances and computers.

Apart from their diverse operations, there was the Australian element in several company reports. Hallenstein Glasson's annual meeting in December was told the Australian retail apparel sector would continue to be difficult. It was "not an easy market."

The chairman's address to that meeting had a statement that a cynical older generation might see as a proverbial sign of the times: "The HBK chain of stores has also undergone a major marketing repositioning and is now an 'all girls' offer, targeting specifically the six- to 14-year-olds, with a core target of 8 to 12-year-olds.

"While this inevitably had a negative impact on sales during the early phase, it is pleasing to note that the chain is performing well and carving a strong niche for itself in the New Zealand girls' fashion apparel market."

Ye gods; eight to 12-year-olds are a "girls" fashion market? Put it down to the international advertising industry, peer pressure and indulgent parents.

The fact is that retailers of any product cannot ignore those social factors.

They go beyond girls' clothing - oops, the "fashion market" - and can be seen in retailers chasing trends such as self-styled sophisticates' patronage of trendy coffee "cafes."

They were known as coffee bars 40 years ago, when there was an explosion of them everywhere, particularly in Auckland and Wellington.

Every switched-on retailer knows the validity of the cliché that what goes around comes around.

It is a fair bet, for example, that Hallenstein Glasson will be selling clothing in some coming "season" to the daughters of women who threw out the same gear years

Listed retailers are up with that play, as shown in their profit and share price performance.

Retail companies' share price performance (c)

Company	Price 15.3.02	Price 24.9.01	% change 9.01-15.3	2001/02 high	2001/02 low	Profit change latest period (%)

A Barnett	90	83	+8.4	110	80	+13.9 ^1,2
Hallenstein Glasson	288	260	+10.8	312	221	+0.9 ¹
Michael Hill	510	410	+24.4	525	345	+7.3 ³
Pacific Retail	210	177	+13.0	230	123	+109.6 ²
Restaurant Brands	200	147	+36.1	205	126	+24.4
Kirkcaldie & Stains	374	452	-17.4	520	370	-22.0 ¹
The Warehouse	693	580	+19.5	702	297	+13.8

¹ Final; interim due soon
² Adjusted for unusuals
³ Profit on sale of building deducted

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