ASX retail earnings: What will they reveal about our cost-of-living squeeze?

Aussies are focusing on essentials and cheaper options due to rising living costs
Investors should watch staples and discretionary stocks for economic trends
Their earnings reports will trickle in over the coming few weeks

The latest Westpac Melbourne Institute Consumer Sentiment Index shows that many Aussies are still feeling worried about their finances, and this sense of unease has been growing for the past two years.

At the same time, many retailers are struggling, with a significant rise in store closures and financial troubles.

Recent research from Monash University’s Australian Consumer and Retail Studies (ACRS) also highlights how Australians are shifting their spending habits.

People are spending more on essentials such as housing, insurance, and groceries, while cutting back on non-essential items, such as clothing.

The survey by ACRS also shows that a large number of Australians feel they are paying higher prices for these essentials compared to a year ago. More than half surveyed think these prices are unjust.

In addition, this year’s survey also noted that many are postponing larger purchases and waiting for sales or special deals. A growing number of people are also opting for cheaper brands or second-hand items.

Despite these financial pressures, most Australians are managing to save some money each month, but 18% of people either can’t or choose not to save at all.

Staples stocks to watch for

ASX investors are also bracing for a tough earnings season as a flood of earnings reports is expected to be delivered over the coming weeks.

Experts suggest that investors should focus on two sectors – Consumer Discretionary and Consumer Staples – to gauge the extent of the cost-of-living problems on the broader economy.

Consumer Staples is a key sector to watch because it consists of essential products that people need daily, such as food, beverages, cleaning supplies, and personal care items.

The performance of consumer staple companies can provide clues about economic resilience, and a strong performance suggests that consumers are managing well despite higher costs.

Monitoring this sector can also reveal how price increases or inflation are impacting consumer budgets and purchasing patterns.

Two stocks to watch here are Coles (ASX:COL) and Woolworths (ASX:WOW).

Coles had a strong Q3 (which was reported in April) with sales a touch ahead of consensus, led by its supermarkets division.

“A good result, and we would expect the market to respond positively owing to ongoing momentum in food, favourable margin mix and further opportunities into new adjacencies such as pet,” said a report from Jarden Research.

Woolworths also reported decent Q3 results despite a challenging environment. Its supermarkets sales for Q3 were down only 0.8% on the pcp.

“Customer metrics and sales growth across the Group have been impacted, but encouragingly, unit volumes and customer metrics improved as the quarter progressed and we expect more stable trading in Q4,” said Woolworths CEO, Brad Banducci.

Woolworths will now report its Q4 results on August 28, while Coles’ announcement will be on August 27.

Consumer discretionary stocks to watch for

Meanwhile, the Consumer Discretionary sector is even more crucial for understanding the broader impact of cost-of-living pressures because it includes non-essential goods that people only buy when they have money to spare.

Consumer discretionary spending is therefore more sensitive to economic conditions than staples. Examining earnings in the discretionary sector can give investors more valuable insights into the broader economic climate.

Some of the stocks to focus in this sector would be JB Hi-Fi (ASX:JBH), Harvey Norman (ASX:HVN), Myer (ASX:MYR), Accent Group (ASX:AX1), Cettire (ASX:CTT), and Kogan (ASX:KGN).

The discretionary sector has been under enormous pressure as we’re starting to see cracks in household balance sheets.

Online fashion retailer, Cettire, for instance, said the operating environment within global online luxury has become more challenging.

“Multiple listed luxury businesses have described softening demand trends and increased promotional activity (over and above the typical seasonal promotions), leading to a tougher margin environment,” said the company.

Electronics retailer JB Hi-Fi has also been struggling, with sales declining in Q3 (except for its NZ business).

Research firm Jarden has retained its Underweight rating on JBH, with the view that JBH is reaching maturity across a number of categories, at a time competition is increasing.

“We also see some risk this continues… as consumers more actively seek floor discounts, which are not as heavily supplier funded, in our view,” said Jarden.

Meanwhile, online retailer Kogan is probably one of the most resilient retailers out there after the company returned to revenue growth in the June quarter.

“Cost of living pressures are driving customers to Kogan.com and we’re working harder than ever to ensure we save our customers a lot of money,” said the company.

Here are some earnings reporting dates to watch for:

Cettire – August 8
JB Hi-Fi – August 12
Accent Group – August 22
Kogan – August 26
Harvey Norman – August 29
Myer – September 12 – to be confirmed