Via Credit Suisse:
■ Discretionary categories performed well in May. Supermarket growth appears largely driven by inflation in meat, fruit and vegetables. The sample sector for food retail continued to decline. Two consecutive months of month-on-month growth from Western Australia appear to be encouraging.
■ Whilst, at face value, the May sales results appear supportive of discretionary retailers, be cautious of a pull forward in spending due to sales activity. If discretionary categories accelerated due to sales activity, expect downside risk to June and margin weakness in June half results. The June retail sales figures will be more informative in relation to that risk. With the exception of department stores and recreation goods, sales recorded in the discretionary categories accelerated in May. On a seasonally adjusted basis, Department stores -0.6% YoY and Recreation goods -3.0% YoY decelerated. Clothing stores +3.5% YoY, furniture +8.3% YoY, Electrical +5.4% YoY and Hardware +1.5% YoY accelerated. It is likely that growth rates for the Hardware sector are continuing to be impacted by the removal of Masters from estimates and that the remaining industry is trading above the reported growth rates for the sector.
■ Growth in the supermarket sector appears mainly driven by seasonal inflation. Supermarkets grew 4.0% YoY seasonally adjusted in May, which was unchanged on April’s growth rate. The March quarter showed growth almost entirely driven by inflation and our price surveys show that price increases are concentrated in fruit, vegetables and meat. The cost of goods-driven price inflation is not helpful for the supermarkets. The sample sector for food retail has been contracting since December 2016. In May, the food sample sector contracted 3.6% YoY. Liquor retail decelerated to +3.3% YoY from an exceptionally strong +7.1% YoY in April. Liquor retail appears to be maintaining a strong growth trend.
Good for GDP though!
