Analysts ponder continuing flat retail

Flat retail sales in January have left some analysts wondering why New Zealanders are not spending more as economic indicators improve.

Statistics New Zealand figures released on Friday showed that instead of the expected solid 1.3% bounce in the core series, sales rose only 0.3% after a drop in December that had been revised to a larger 2% - a record monthly fall for the series.

Bank of New Zealand senior economist Craig Ebert told the Otago Daily Times that while not wanting to make excuses, he was starting to wonder if some of the weakness reflected households materially increasing their savings rates.

"We say this with signs that employment indicators are improving and consumer confidence has strengthened to a relatively strong level.

This is not usually the backdrop to falling spending."

The idea that saving was increasing fitted with anecdotal evidence that many households had not dropped their mortgage repayments as much as the big fall in mortgage rates had afforded, he said.

That implied increased paying down of debt, causing pain for retailers, but fundamentally a good thing in respect of desired debt reduction and a firmer foundation set for the medium term, Mr Ebert said.

The other thing he continued to wonder about was how much of the disappointing trend in nominal spending reflected aggressive discounting by retailers, as opposed to poor sales volumes.

Retailers were now the laggard in generally optimistic business surveys.

"This, by the way, is a gentle reminder that the retail sector is probably not the place to look for the leading edge of New Zealand's GDP recovery.

That mantle seems to be migrating to the likes of manufacturing, the broader services sector and even some parts of the construction sector," Mr Ebert said.

Forsyth Barr broker Suzanne Kinnaird said her short- to medium-term view of the listed retail sector was neutral.

She continued to have accumulate recommendations on Briscoe Group and Michael Hill International, which she believed still offered attractive long-term value.

Hallenstein Glasson and Pumpkin Patch were trading at smaller discounts to her valuation, but with the retail recovery likely to be gradual, there was a hold recommendation on those companies.

Restaurant Brands and The Warehouse Group also had hold recommendations.

Stock updatesBriscoe Group: The $21 million full-year result included $1.9 million of writedowns on Living & Giving and was nearly double last year's result.

The second half showed a return to normal profit margins in both Homeware and Rebel Sports after 18 months of depressed margins.

Hallenstein Glasson: The company expected a first-half result of $8.1 million to $8.4 million.

Sales were up 10.7% during December and January and 6.7% for the first half of the year.

Michael Hill: The first-half result was strong, as expected, with improving second-quarter same-store sales trends in all markets.

Group earnings were up slightly because of lower unallocated costs.

Pumpkin Patch: The $14.3 million first-half result was slightly above forecast, with the United Kingdom and wholesale results better than expected, but Australia less strong than assumed.

Net debt fell to just below $10 million and inventories were down a further $5 million and remained well within normal levels.

Restaurant Brands: The operator of KFC, Pizza Hut and Starbucks increased its full-year guidance from $17.5 million to $19.5 million, citing stronger than expected fourth-quarter trading and renegotiated supply agreements.

The KFC refurbishment programme continued to increase sales and profitability.

The Warehouse Group: The adjusted interim result to January was $57 million, in line with guidance and the Forsyth Barr forecast.

However, guidance for the full year was flat and Ms Kinnaird had trimmed her forecasts slightly.

The group planned further expansion in the next few years, including four or five large stores and up to seven smaller format stores.