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May 11, 2011
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Australia's Myer, David Jones see signs of retail uptick

By
Reuters
Published
May 11, 2011

May 11 - Sales at Myer Holdings and David Jones , Australia's top two department store chains, declined in the third quarter but there was a hint of improvement, with colder weather boosting clothing sales in April.

Myer, Jones

Both retailers warned that any move by Australia's central bank to hike interest rates, as widely expected, may nip the nascent spending recovery in the bud.

"If you use my phrase of a couple of green shoots coming through -- I think a couple of them will curl when there's an interest rate increase," said Myer Chief Executive Bernie Brookes, adding that the retailer is expecting rates to rise.

Australia's central bank warned last week that a further rise in interest rates will be needed at some point to curb inflation amid the biggest mining boom in over a century.

The two retailers reaffirmed their profit forecasts, prompting investors to push up Myer shares by 0.3 percent and David Jones shares by 4.5 percent.

"There was a bit of a relief that in their commentary they're saying at the end of the quarter, and currently, things seem to be picking up a little bit," said Brian Han, head of company research at Constellation Capital Management.

The pick-up in April and into May noted by both Myer and David Jones offers some hope that the struggling retail sector may be bottoming out.

Myer, Australia's largest department store chain, said like-for-like third quarter sales fell 3.1 percent from last year to A$657 million ($711.9 million), hurt by floods in Queensland and Victoria.

Myer's sales results included more recent data than top shopping mall landlord Westfield's first-quarter release on Wednesday, which showed an alarming 11 percent slide in sales at department stores in its Australian malls in the March quarter.

Those figures included January, when floods in eastern Australia knocked sales, especially at Myer, which had to close six stores.

Myer Chief Executive Brookes said the retail environment improved during the quarter, even though consumers remain cautious, with its best growth in categories like cosmetics and menswear.

"There are a couple of early signs in my view that the consumer's starting to come back and spend," he told reporters.

Excluding the sales of electrical goods, which have seen steep price deflation, like-for-like sales were down just 0.3 percent in the third quarter.

Still, the year to June 30 was expected to remain challenging and profit to be up to 5 percent below the previous year, Brookes said.

Australians have become more frugal since the global financial crisis, saving more and spending less. As a result of shrinking sales, the retail sector now accounts for just 18 percent of annual gross domestic product (GDP), down from 23 percent before the crisis.

Australia's retail sales fell 0.5 percent in March, an unexpected drop, data released last week showed.

David Jones met analyst forecasts with third-quarter like-for-like sales down 1.3 percent to A$412 million.

David Jones Chief Executive Paul Zahra said retail conditions picked up in April, helped by a later Easter and colder weather which lifted clothing sales.

The upmarket retailer previously flagged profit growth at the lower end of its forecast of 5-10 percent for both the second half and the full year to July 2012.

However, it said if the improved trading conditions seen in the month of April continued, growth could be above 5 percent.

(Reporting by Victoria Thieberger and Sonali Paul; Editing by Ed Davies and Dhara Ranasinghe)

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