A mixed reporting season was expected for the New Zealand listed retail sector, not helped by the late start to summer, Forsyth Barr broker Andrew Rooney said.
Following on from the recent electronic card transactions data released by Statistics New Zealand, Forsyth Barr released updated comments on listed retailers and their prospects.
It was a challenging Christmas for listed retailers, Mr Rooney said.
A spending preference for the experience and leisure categories was not favourable for listed retailers.
''We expect the late start to summer also weighed on those exposed to weather-related categories. Restaurant Brands will likely benefit from trends.''
The Warehouse Group had already highlighted Christmas trading missed expectations.
At most risk were apparel retailers Hallenstein Glasson and Pumpkin Patch.
A small impact was expected on the Briscoe Group in the fourth quarter, he said.
''Our preferred picks in the retail sector are Kathmandu and Michael Hill International - both with an outperform rating. We have a positive view on outlook with growth driven by footprint expansion and, for Michael Hill, its jewellery care plans.''
The rapid growth of online retailing was driving major structural changes to the traditional retail model, Mr Rooney said.
He expected further strong growth in online retailing in the medium-term, particularly as technology improved and geographical barriers continued to be eroded.
Kathmandu was the best placed listed retailer to benefit from online sales while Hallenstein Glasson was seen as the one most at risk.
Hallenstein Glasson said in a statement on Monday it expected first-half earnings to rise by about a third after robust Christmas trading with positive growth continuing through January.
Post-tax earnings might rise to between $8.1 million and $8.3 million in the six months ending February 1, from $6.2 million a year earlier.
Mr Rooney said online spending in New Zealand amounted to about $3.8 billion in 2013, up more than 15% on the the previous corresponding period.
Online spending continued to grow rapidly, averaging more than 15% over the past four years compared to 3% growth for traditional retail.
About 60% of current online retail purchases were made from domestic retailers, with the remaining 40% from offshore ''pure play'' and multi-channel retailers.
However, purchases from offshore retailers were growing more rapidly.
''We expect this higher rate of growth is being driven by the strength of the New Zealand dollar, better choice through offshore sites, increased consumer online literacy and marketing tactics such as free shipping and no obligation returns.''
Stock comments
Briscoe Group (neutral rating)
Earnings growth over the short to medium term would be driven by continued refurbishment of existing stores, market share gains and footprint expansion.
The company had a large cash balance to support another special dividend or an acquisition, if the right opportunity came along. That would unlock value to shareholders and improve its inefficient capital structure.
Hallenstein Glasson (outperform rating)
Hallenstein Glasson's earnings fall in 2014 was underpinned by a tough retail backdrop, structural pressure and management decision-making, Mr Rooney said.
''It was a tale of two halves with a substantial earnings contraction in the first half while the second half was only marginally lower.''
The company could recover from two poor seasons and the first four months of the current financial year were tracking well with sales up 2% and a solid improvement in gross margins. The latest trading update was expected this month.
Kathmandu Holdings (outperform rating)
Kathmandu highlighted its pre-Christmas trading was below expectations due to subdued Australian trading. Given seasonal factors, it was still early days in the group's 2015 earnings cycle, he said.
''The trading backdrop elsewhere is more positive but limited disclosure and the volatility of earnings, which are seasonally weighted to the second half, make forecasting difficult.''
Michael Hill International (outperform rating)
The listed jeweller reported second-quarter 2015 sales up 4% with solid same-stores growth in New Zealand, Canada and the United States which offset weakness in Australia. Sales were helped from currency transactions.
No guidance was provided but Mr Rooney expected good growth to be underpinned by North America and New Zealand. There was a positive outlook for Michael Hill with growth being driven by more stores.
Pumpkin Patch (underperform rating)
Pumpkin Patch's annual meeting highlighted challenging conditions continued through the first quarter of 2015, particularly in Australia. The market had yet to be updated on Christmas trading. The industry backdrop remained unsupportive with increased competition and product discounting, particularly in Australia.
''We do not foresee this changing in the near term. The company still has a lot of hard work ahead and considerable execution risk remains.''
Restaurant Brands (neutral rating)
The operator of KFC, Pizza Hutt Starbucks and Carl's Jr reported strong sales growth in the third quarter of 2014, with a 11% same-store sales growth at KFC the highlight. Growth was expected to have been driven by a buoyant hospitality sector and higher average transaction values given it was cycling a period of aggressive discounting campaigns. KFC was on track for a stellar 2015 result, Mr Rooney said.
The Warehouse Group (underperform rating)
Despite acquisitions, the Red Sheds were still the key contributor to group profit. The chain had been a repeat offender behind recent downgrades, despite significant capital invested in the store base. Strategic changes remained a work in progress and investors were yet to see evidence of a sustained turnaround in profits.
