Discretionary retailers Harvey Norman (ASX: HVN), JB Hi-Fi (ASX: JBH) and Nick Scali (ASX: NCK) shared grim sales updates for Q1 FY 2024. The adverse impact of rising interest rates and inflation is starting to seep through Aussie and Kiwi back pockets. Excluding the impact of lease adjustments to property revaluations, Harvey Norman’s profit before tax dropped by 49% in Q1 FY 2024 relative to Q1 FY 2023. JB Hi-Fi didn’t disclose profit figures but sales for The Good Guys fell by 12% across a similar comparative period. As for furniture retailer Nick Scali, written sales orders declined by 5% with store traffic dropping 10-15%.
On both a total-store and same-store basis, sales results for these three ASX retailers are weak.
It seems spending on big-ticket items like furniture and white goods has pulled back significantly. Global whitegoods appliance manufacturer Electrolux (OM: ELUX) has suffered a decline in sales of 9.5% from the quarter ended December 2022 to the quarter ended 30 June 2023. Whilst home entertainment and small appliances seem to be resilient based on recent quarterly sales results of LG and Hisense.
As inflation and interest rate pressures rise, the biggest discretionary items are often cut swiftly. JB Hi-Fi possesses a greater price range of products, making it a more resilient business. Given JB Hi-Fi is planning on rolling out more stores in New Zealand, it could potentially capitalise on Harvey Norman’s weakening performance.
Overall, pessimism is rife amongst retailers but if I was to choose one to monitor, it would be JB Hi-Fi. Its wider range of product categories along with its smaller stores enables it to likely withstand further worsening macroeconomic conditions compared to Harvey Norman and Nick Scali.
Disclosure: the author of this article does not own shares in or have a position in any of the companies mentioned. The editor of this article does not own shares in or have a position in any of the companies. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).