5 Australian retailers that are most vulnerable to a spending downturn this Christmas

(Brook Mitchell / Getty Images)
  • UBS has warned this Christmas season is shaping up as a tough one for Australia’s retailers.
  • The analysts highlighted five companies more vulnerable to challenging sector conditions and falling house prices.
  • Myer, Breville Group, Harvey Norman, JB Hi-Fi and Super Retail Group are “most at risk” of further earnings downgrades.

This year’s Christmas shopping season is shaping up as a crucial one for Australia’s retailers.

Spending levels will serve as a key indicator for whether falling house prices and tighter credit conditions are beginning to weigh on consumption.

“If consumers become more cautious and save, retail will slow”, the UBS retail team said.

And they warned that conditions this year will be challenging, with some companies more vulnerable than others.

The analysts have downgraded Myer and Breville Group to “Sell” and are cautious on JB Hi-Fi and Harvey Norman — the two companies “most exposed to housing”.

Super Retail Group rounds out the five listed retailers that UBS deems “most at risk” of a slowdown in earnings.

But unlike the other four companies, those risks have “largely been priced in” to Super Retail’s share price.

Already, Christmas sentiment is starting to dim with multiple listed retailers expressing caution on the outlook.

UBS highlighted recent commentary from Super Retail Group, jewellery store operator Lovisa Holdings and Nick Scali Furniture — all of whom pointed to softer trade over the Christmas period.

The analysts said subdued sentiment is yet to show up in the hard data, although on a trend basis retail sales slowed noticeably in the September quarter.

However, “we expect Christmas will be challenging, creating a risk to forecasts,” they said.

So far, Australian households are yet to respond to falling house prices by battening down the hatches and boosting savings. Australia’s household savings rate remains near multi-year lows of around 1%.

However, if the savings rate returns to its 10-year average, that would drive a cut of more than 10% to UBS’ earnings forecasts for the sector through 2021.

On a brighter note, UBS said the outlook for Australia’s grocery industry is more stable, due to easing price competition and “a more rational market”.

This table shows the latest UBS ratings for Australia’s listed retail companies:

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