Firms brace for falling profits

Retail sentiment plummets as slowing demand dampens outlook

Pessimistic sales projections for the September quarter are forcing businesses to lower their earnings expectations, with one in three anticipating declining sales (27%) and a similar number expecting lower profits (30%) in the coming months.

Dun & Bradstreet's latest National Business Expectations Survey reveals that sales expectations are now at their lowest point in twelve quarters, following a fall of 14 index points against June quarter figures. A similar decline (13 points) in profits expectations has placed the index in negative territory at -5.

Dismal sales and profits expectations are flowing through to other key business indicators. One in five firms (21%) indicate they will not replenish inventory levels in the coming quarter (now at an index of -1), and 15 per cent indicate they will need to discount to move stock.
Firms are also revising plans for employment and capital investment. The number of businesses expecting to increase staff numbers fell three points to an index of two, while anticipated capital expenditure decreased by two points to an index of seven. Continued delays in capital investment and other long-term strategic initiatives could detrimentally impact future productivity and GDP growth.

Sales, profit, employment and investment expectations index


According to Dun & Bradstreet CEO, Gareth Jones Australian businesses are anticipating a difficult September quarter.

"The subdued outlook reveals the extent of uncertainty among Australian executives, with continued global economic turbulence and slowing local demand hitting the confidence and performance of local businesses," said Mr Jones.

"In turn, this lack of confidence and subdued performance is creating a knock-on effect - businesses are halting investment plans, a situation which has the potential impact productivity gains and consequently GDP growth."

Sales and profit expectations plunged dramatically among retail firms, with the index falling 16 points to -7, and profit expectations down 17 points to an index of -18.  These results are supported by demand expectations, with two-thirds (64%) of retail executives anticipating demand will slow in the year ahead.

This issue is also impacting retailers intentions in other areas, as an increased number of firms prepare to reduce inventory levels (now at an index of -10), and expectations for new staff and capital investment have entered negative territory (an index of -2 and -4 respectively).

Concern over online competition is further dampening retail sentiment, with 58 per cent of retail executives apprehensive about competition from online sellers, up 15 percentage points since last month. Likewise, more firms will monitor movements in the official cash rate, with half of retail executives expecting interest rates to have the biggest influence on operations in the quarter ahead.  This is an increase of nine percentage points since April.

"Conservative consumer behaviour is placing significant downward pressure on the retail sector. As a consequence, firms are expecting the start to the New Financial Year will be challenging," said Mr Jones.

"The number of consumers tapping into online shopping continues to grow as increasingly budget conscious consumers compare prices and purchase from overseas when prices are lower. This trend is evident in ABS data showing a 0.2 per cent slump in retail sales in April.

"The retail sector in particular, is expecting interest rates to play a critical role in their performance over the coming months, with hopes of further reductions in the official cash rate to stimulate spending."

Durables manufacturers also recorded a notable drop in projected sales and profit, with these indices now sitting at -3 and -12 respectively. Forty-eight per cent of durables manufacturers expect slow growth in demand to have the biggest impact on operations, while more than a third (39%) anticipating a negative impact from the continued high local dollar. 

According to Dr Duncan Ironmonger, Dun & Bradstreet's economic consultant, the dark outlook for Australia's retailing sector which is evident in the D&B survey, is confirmed by the latest ABS retail sales data.

"ABS data show the main casualty from consumers holding back on spending has been the household goods group covering electrical and electronic goods, hardware, furniture, floor coverings and housewares. Trend sales for this group peaked last October and has fallen every month since then at an annual rate of -4.7 percent," said Dr Ironmonger.

"The other five retail groups continued to rise every month with the stand-out groups being cafes, restaurants and takeaways (+9,9% pa) and clothing, footwear and personal accessories (+8.5% pa). However the annual trend growth for all retail sales for the six months to April was only 3.3 percent, barely ahead of the rate of inflation."

Connect with us to receive updates throughout the day:

Like us on Facebok Follow us on Twitter

Dun and Bradstreet AustraliaTop of page Dun & Bradstreet Australia Pty Ltd 2015 | D&B Small Business    *About Us    *Sitemap    *Advertise    *Privacy    *Terms & Conditions