New Zealand retailers face tougher time ahead: Goldman Sachs

New Zealand retailers face tougher time ahead, Goldman Sachs says

By Jason Krupp

Jan. 19 (BusinessDesk) - New Zealand's already battered retailers face an even tougher time this year as households continue to focus on shoring up their personal balance sheets instead splashing out at the shops, according to Goldman Sachs and Partners.

Core retail sales will probably grow 1.4% in the next 12-months, according to Goldman Sachs research, down from last year's 1.9% growth. That comes despite signs the local economy is returning to growth, with the investment bank forecasting gross domestic product to expand by 2.9% over the same period.

"Household spending has been restrained over the past year as precautionary savings were rebuilt, debt was repaid, income growth languished and general cautiousness lingered," said Buffy Gill, a retail sector analyst at Goldman Sachs. "While the labour market is beginning to improve modestly and disposable income growth is being assisted by personal tax cuts, we expect weak house prices to encourage ongoing deleveraging by households and keep a lid on spending."

New Zealand's retail environment has declined sharply over the past three months, impacted by the increase in GST to 15% in October from 12.5% previously. Even with the sales tax hike stripped out, October sales are estimated to have fallen by 4.5% compared to the same month in the previous year.

Retailers also struggled over the key Christmas period according to early indicators, with debit and credit figures for December showing the number of transactions fell 1.2% from November, with a 1.6% decline in core retail industries. The total value of transactions fell 1.2% to $5.05 billion, ending four months of gains.

Festive season sales revenues have been hurt by across the board discounting, with Goldman Sachs’ research showing retailers cut prices earlier and by more in 2010 than previously in a bid to lure customers into their shops.

"The higher level (of discounting) also reflects a retail environment which remains very difficult, with retailers competing aggressively to maintain share," Gill said.

The tougher market conditions saw Warehouse Group, New Zealand's biggest listed retailer, cut its first-half profit forecast after sales fell 2.7% in the two months ended Jan. 2, compared to the same period last year, while same store sales declined 3.8%. Net earnings are now expected to come in at between $51 million and $54 million for the six months to Jan. 31, down from $57 million reported in the previous year. Goldman Sachs rates the stock as "sell".

One bright spot in the report is Kathmandu Holdings, which is rated as "buy". The outdoor retailer today raised its earnings before interest and tax forecast between $18.5m and $19.5m, a gain of 20% to 26% from the same period a year earlier, on the back of solid sales numbers.

The investment bank maintains a "hold" rating on clothing retailer Hallenstein Glassons Holdings, and a neutral rating on children's clothing chain Pumpkin Patch Ltd.

(BusinessDesk)

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