Black Friday spending gave Santa a run for his money

JSE-listed retailers have released a mixed bag of results updates that include November’s Black Friday and the Christmas sales period, and Statistics SA has just released its retail sales figures for November 2017.

And while these are not direct time-period comparisons, there again appears to be a strange divergence between Statistics SA figures and the revenue growth figures emanating from listed retailers.

Statistics SA figures have been buoyant for several months, while the companies have shown pedestrian improvement at best — and the latest trading updates are no exception.

Statistics SA’s year-on-year growth in retail sales for November was 8.2%, which is way above the consensus of about 3%. In terms of categories of spending, “all other retailers” was again the notable performer during the month, recording the highest growth at 21%, followed by furniture and appliances at 14% and clothing, footwear and textiles at 13%.

“All other retailers” include second-hand goods and informal and online retailers. This category has exhibited robust growth for many months.

The weighted contribution of this category to the overall retail sales growth of 8.2% was 2%, so if it were excluded, retail sales still grew by an impressive 6%.

These figures are all expressed in real terms, after deducting inflation, so in nominal terms, overall retail sales grew by about 13%.

But none of the listed retailers exhibited sales growth anywhere near this type of figure. The trading updates that came out in mid-January were either for three-month (Mr Price) or six-month periods and ranged from flat growth in the cases of Massmart and Truworths to high single digits for Shoprite and Mr Price.

Woolworths posted very poor figures, save for its local food retail division, which grew 9% in the six months to end December 2017. Its clothing sales went backwards slightly and in comparable terms (excluding the effect of new floor space) sales declined by 3%.

If we ignore the divergence between the two sources for a moment, we can at least draw two conclusions. First, if Statistics SA’s figures are reliable, then spending on “Black Friday” probably exceeded expectations, which would account for the spikes in spending on durable and semidurable goods such as furniture, appliances and clothing.

And if we further assume the retailers offered generous Black Friday discounts to entice shoppers through the doors (which anecdotally they appeared to have done), then we can reasonably expect to see that reflected in attenuated profit margins when full results are published in mid- to late-February.

And second, given that there is a finite amount of money available for consumers to spend, it seems reasonable to assume that Christmas sales would have been negatively affected by the large surge in Black Friday spending.

An interesting observation is that the uninspiring numbers announced by JSE-listed retailers do not seem to be reflected in their share prices. Foschini, Mr Price and Shoprite are trading at or near five-year highs, while Massmart, Truworths and Woolworths are well above their lows of 2017.

And some of them are expensive, with Massmart, Shoprite, Pick n Pay and Mr Price all on price:earnings (p:e) ratios of more than 20 times. More reasonably priced are Foschini (p:e 14) and Truworths (p:e 12), as growth in the clothing retail sector may prove elusive.

The market obviously believes that with a new political order about to be unleashed in SA under Cyril Ramaphosa, there are reasons to be cheerful about the retail sector once again. Also, household debt to disposable income has declined from highs of about 85% a few years ago to a more comfortable figure of about 72%. While I share the enthusiasm, market ratings appear rather optimistic, given the economic headwinds that are likely to prevail.