Retail Stocks

[Muse]

Re: Aussie retail growth rates it's worth recalling the lockdowns in the previous corresponding periods being cycled...
Attachment 14104

August & September should produce strong year on year growth. A brand I watch closely as a read through for how Glassons AU is performing is Universal Store (the later which I became a minor shareholder in June) which operates with a June year end. In their latest presso they talked to 55% higher sales in July & August (new FY23 yr) than in the previous 8 week period.

No doubt the Aussie economy is far stronger than NZ's and there is some geniune strength in the underlying retail trade, which is well above trend. But that also leads me to suspect inflation will continue to rise and their interest rates will likewise rise & surprise on the upside. AU was late to the party when it came to raising interest rates, and while a bit lower than NZ's, the vast majority of mortgages there are floating, & the flow through will be felt quickly.

The july figures do pre date the cash flow impact of RBA rate hikes in May and June. There is an average 3 month delay between an increase in the RBA cash rate and the increased mortgage being deducted from a mortgage holder's bank account (according to Commonwealth bank research).

Between all this makes for interesting / problematic forecasting & investment timing decisions. I suspect month to month spending will remain strong for 1-2 more quarters and then start to weaken considerably. But as the underlying trend weakens year on year growth rates both at an aggregate industry level and company level will still be posting strong growth as it cycles over lockdown effected periods. So there could be a lot of excitement come 1H FY23 results, followed by expectations being highly disappointed in 2H FY23.

Just my two cents. Important to do your own research.

[Waltzing]

YUP but MHJ got the land of bears, salmon and MOOSES'S....

and even if MHJ can keep it ticking then its got to be rerated up to near a 2 FA...if they can get the div to 10 cents over the next few years..

its gone from a buy and dump to a buy and hold...

Glassons only an AUS story...

not time to kick MHJ dog down yet.

[Muse]

YUP but MHJ got the land of bears, salmon and MOOSES'S....

and even if MHJ can keep it ticking then its got to be rerated up to near a 2 FA...if they can get the div to 10 cents over the next few years..

its gone from a buy and dump to a buy and hold...

Glassons only an AUS story...

not time to kick MHJ dog down yet.

TBH I didnt have MHJ in mind with my post, and I know nothing about the Canadian market or jewellery trade. All I know is I’m pleased I purchased my wee MHJ stake when I did and am a happy holder.

[LaserEyeKiwi]

Re: Aussie retail growth rates it's worth recalling the lockdowns in the previous corresponding periods being cycled...
Attachment 14104

August & September should produce strong year on year growth. A brand I watch closely as a read through for how Glassons AU is performing is Universal Store (the later which I became a minor shareholder in June) which operates with a June year end. In their latest presso they talked to 55% higher sales in July & August (new FY23 yr) than in the previous 8 week period.

No doubt the Aussie economy is far stronger than NZ's and there is some geniune strength in the underlying retail trade, which is well above trend. But that also leads me to suspect inflation will continue to rise and their interest rates will likewise rise & surprise on the upside. AU was late to the party when it came to raising interest rates, and while a bit lower than NZ's, the vast majority of mortgages there are floating, & the flow through will be felt quickly.

The july figures do pre date the cash flow impact of RBA rate hikes in May and June. There is an average 3 month delay between an increase in the RBA cash rate and the increased mortgage being deducted from a mortgage holder's bank account (according to Commonwealth bank research).

Between all this makes for interesting / problematic forecasting & investment timing decisions. I suspect month to month spending will remain strong for 1-2 more quarters and then start to weaken considerably. But as the underlying trend weakens year on year growth rates both at an aggregate industry level and company level will still be posting strong growth as it cycles over lockdown effected periods. So there could be a lot of excitement come 1H FY23 results, followed by expectations being highly disappointed in 2H FY23.

Just my two cents. Important to do your own research.

This is why MHJ also provided comparison to 1st 8 weeks of FY2021 (which didn’t have lockdowns), which showed 13.4% growth in FY23 vs that period.

[Muse]

Weekly Update:

======================

Fixed mortgage rates continue a slow decline form then recent peak:

Attachment 14097

These are awesome LEK thanks v much for doing them.

The last point on fixed mortgages retreating a bit got me do some thinking. Long thinking out loud ramble follows, not specifically related to your post, but just on interest rates.

I see ave 2yr fixed mortgages have decreased by ~22bps, according to our favourite website, interest.co.nz.

I wouldn't be surprised to see fixed mortgages rise a wee bit after the relief rally in bank funding costs (eg swap rates). Swaps are rebounding a bit, offshore funding costs are rising which trickles in to NZ....would expect SWAPs and fixed mortgage costs to be undulating, like the ridge of a tramping track that has constant ups and downs, but staying in a tight range.

But it's my pretty firm view the weighted average effective mortgage rates paid by households in aggregate has risen and will continue to rise for the next 6-12 months, before plateauing & hopefully retreating at some point. ANZ recently had a pretty interesting chart (below) breaking down the tenure of mortgage durations. 59% of mortgages are floating or fixed for less than 1 year, 41% for more than 1 year. Fixed for less than 6 months and fixed for 6-12 months are the top tenures, followed by fixed for 1to2 yrs, then floating, then 2-3yrs, then a tiny bit of 3yrs plus.

Attachment 14105


As far as available discretionary spending goes, a slight decrease in fixed mortgages from a month or two ago doesn't improve or alleviate spending pressures, as relevant point of reference is the rate the mortgage being refixed is coming off of...ie were mortgages set 2 years ago, 1 year ago, or 6 months ago, and the prices back then. In all cases the rate is higher now than when mortgages were last priced.

Second, floating rates are tied to the OCR, and more or less rise in lock step with them. So as the OCR keeps going up, floating rates will continue to rise at the same rate. Floating isn't as popular as it was c.2010-2015, but its still meaningful, and has at least another 50bps to rise (probably can't say the same about 2 year rates!)

ANZ have been arguably the most accurate economic forecaster over the last year w/ respect to inflation and interest rates and they now reckon the OCR will get to 4% and stay at that level to the end of 2024 (the end of their forecast period). They reckon we have a little bit further to go before we hit peak interest rates but then they forecast it'll persist longer than other forecasters.

The very worrying thing about longer term rates was the little nugget the RBNZ dropped about re-evaluating the neutral OCR. Currently they and most forecasters think its about 2.5%. But if for some reason they decided it was 3% or 3.5%, then you'd have to tack on that incremental change to the guided inflation track to achieve the intended amount of monetary tightening (IE, if the neutral rate was raised from 2.5% to 3%, the OCR track would have to rise from 4% to 4.5%, or 5% if the neutral rate was raised to 3.5%). That sounds high, but the neutral rate was estimated by the RBNZ at 4% in mid 2014, and 5% back in 2006, so in the context of history, total plausible if not conservatively so.

Attachment 14106

There's not much we can do about that other than toss a coin to predict if the RBNZ will change it or not, but if they do its a biggie for households and employment. They are working on it right now and won't release their revised view until next year.

I guess I just keep coming back to how interest rates have to date interacted with retailer SP's & their economics and how that could change going forward. 10 year treasury rates have risen and that saw a bunch of retailer SP's fall concurrently (particularly in aussie), thanks to CAPM theory and all that. But the economic flow through has only been partial. Households still have jobs, they have savings, and there is still around 40-50% of mortgage holders that are yet to refix into today's interest rates. Nearly all mortgage holders will have mortgages at "new normal" rates by the end of this year, eventually some of those savings will be depleted, travel is on the cards again, unemployment forecast to rise to 5% by end 2024 by ANZ, so its not a sudden pop, but a continuous and meaningful reduction in retail spend. So I remain pretty pessimistic about retail in NZ, despite the indications that fuel and freight may be receding. In the short term I'm more mindful/worried about margin compression (both at the GP% level and increases in fixed costs as a % of sales) than I am about sales, and in the medium term more worried about sales as unemployment rises.

This is all relevant to NZ only, although other markets could be directionally similar. I do think it is a highly positive and desirable feature of retailers and other cyclical businesses that are active and successful in multiple markets. Countries business cycles will be different and fire at different times, and I think of it as an engine with different pistons. That reduces the overall risk of the company (once it has proved it can be successful overseas) which ultimately makes it more valuable.

anyone who got through this whole post give yourself a pat on the back.

[Waltzing]

DR Feynman created some little lines, dot and wiggles for short hand physics...

yep inflation can be a real kicker in the guts for stocks...

https://en.wikipedia.org/wiki/Feynman_diagram

[Onemootpoint]

A nice bit of bedtime reading awaiting

[winner69]

TSB raised its floating rate by +50 bps to 7.55% today

[LaserEyeKiwi]

TSB raised its floating rate by +50 bps to 7.55% today

Surely cant be many kiwis on floating rates?

32% of kiwi households currently have a mortgage (the other 68% are either renting or mortgage free).

The median mortgage owing, for the 32% that have one, was $260k last year.

I would guess that the 32% with mortgages have a disproportionately high amount of the retail spend, but I would guess that would be more pronounced for big ticket items.

[Ggcc]

Surely cant be many kiwis on floating rates?

32% of kiwi households currently have a mortgage (the other 68% are either renting or mortgage free).

The median mortgage owing, for the 32% that have one, was $260k last year.

I would guess that the 32% with mortgages have a disproportionately high amount of the retail spend, but I would guess that would be more pronounced for big ticket items.

I have a mate who is currently on a floating rate. He is gambling that it will go down as fast as it went up......... I advised he should fix it about a year ago. Banks are fast to increase and always slow to decrease.