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Traditional Retailers saved by JobKeeper for now

The earning season is revealing that bricks and mortar retailers are a key beneficiary of the government stimulus. This month, the retail sector has been one of the best performing sectors. The share price of Adairs and Nick Scali, rose by 20% after reporting their earning results. JobKeeper is one of the key reasons for positive earnings surprises.

JobKeeper has helped these retailers both directly and indirectly. JobKeeper helped the retailers keep their employees by subsidising their labour expenses, especially during the first three months of the lockdown. When the lockdown restriction started to relax in June, people who received a government stimulus payment spent their money and boosted the retail sales.

Investors need to be aware that this boost in retail sales may be a one-off event. The Australian Bureau of Statistics' household survey showed how people spent the government stimulus payment. People not in the labour force used 36% of their stimulus payments to make general purchases including food and household furnishings, higher than those who are employed or unemployed (31% and 24%). Those who were employed were also more likely to purchase recreational or leisure activities compared to those not working (13% compared to 4%). The rules of JobKeeper and other stimulus payments will be restricted starting from September. People who were employed and received the stimulus payments may be laid off after the government reduces the wage subsidy. They are unlikely to maintain this spending pattern in the future. Non-essential retailers will be the first to suffer from it.

Investors need to be careful when evaluating the results of retailers. The rise in retail sales in June and July is not a good indicator for the full-year forecasts nor should they be extrapolated long term. When the government starts to limit the stimulus payments, retail sales will be hit. Investors need to be cautious in forecasting the company’s earnings and estimating the company’s value.

Any information has been prepared for the purpose of providing general information only, without taking account of any particular investor's objectives., financial situation or needs, It is not an offer or invitation for subscription or purchase, or a recommendation of any financial product and it is not to be relied on by investors in making an investment decision. Past performance is not a reliable indicator of future performance. To the extent any general financial product advice is provided in this document, it is provided by Glennon Capital Pty Ltd ACN 137 219 866, AFSL No. 338 567. An investor, before acting on anything construed as advice, should consider the appropriateness of such construction and advice having regard to their objectives, financial situation or needs.

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