Kevin Rudd's Flat Screen TV Bonus might have saved the universe, but its outworkings are costing sharemarket investors plenty.
Myer Holdings chief Bernie Brookes and his team at the department store chain have become the latest "victims" of the post-stimulus sales fall. A week ago it was Michael Luscombe at Woolworths.
And they won't be the last, as retailers tot up the takings from their cash registers for the December half year and discover they have to tell punters they struggled to match the super-charged sales of Christmas 2008 when the first round of anti-financial crisis cheques were mailed.
And the effect is two-pronged. The flat and falling sales being reported by retailers are both a reflection of there being no taxpayer-funded bonus this financial year, and the storekeepers cutting one another's throats on prices to try to drag in customers whose Christmas spending spirits were dimmed by the Reserve Bank's three successive interest rate increases.
So, even though both Brookes and Luscombe told the market that their restrained sales growth was not going to mean similarly crimped profits in the full year, because their respective organisations have ripped out the cost of doing business to fatten and maintain profit margins, a sceptical market has discounted their shares just in case the retailers are still too optimistic about being able to meet (and exceed) profit forecasts.
That goes doubly so in an environment where the Reserve Bank has clearly indicated that, while it didn't see a good reason to lift rates this week, it has its finger on the trigger.
Brookes acknowledged that this morning, saying his stores have already launched "Project Blue Sky" to get over what he calls the "speed bumps" in comparative sales expected in April and May when this year's sales will be up against the artificial jump in turnover from the second round of stimulus payments in 2009, and against the unknown timing of rate rises.
The retailers have also created their own monster in the form of consumers who are now far more discerning and better-educated about how, and when, to buy products more cheaply.
"Consumers know they don't have to pay full price in December, and can use a gift card in January" was how Brookes put it in a phone briefing a short time ago. As such, sales for Myer were strong in November, tailed off in December, and were much stronger in January.
Brookes has been cunning enough to keep a little bit in reserve on his profit predictions for the full year — because it never hurts to, as the brokers say "surprise on the upside". While he told the market that earnings before interest and tax for the first half are up more than 10 per cent over last year's $161 million, he did not revise the forecast in last October's prospectus for EBIT of $261 million in the full year.
That conservatism means if all goes according to plan, he will beat forecasts, but if these next few months are tougher than expected, he has a margin of error.
And while it won't help Myer this financial year, it has two store openings on the horizon and, critically, come November its spiritual home in Melbourne will return to full trading. Brookes says the store accounted for $300 million in annual sales before they started pulling down the walls, and those numbers have dropped to around $220 million now. That means he should have at least an additional $80-million jump in sales when he unveils Myer's figures this time next year.
imcilwraith@theage.com.au
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