Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Retail sales: The V-shaped recovery is underway

Today’s Australian retail sales figures were dramatically better-than-expected, with sales rising a record 16.3% MoM in May and 5.3% YoY (Figure 1). At the May monthly level, retail sales are 4.1% above their pre-COVID-19 level! This is consistent with a V-shaped recovery for Australia.

This is not a lucky outlier. On our estimates, household cash flow could rise by about 7% in 2Q20, with government transfers, early super withdrawals and mortgage refinancings outweighing the hit to wages, dividends and small businesses. With further reopenings enabling businesses to rehire workers, household cash flow should rise much further in 3Q20.

In addition, the retail sales data is consistent with the strong rebound we have seen in consumer confidence, up 6.3% MoM in June after May’s 16.4% rise, leaving it just 1% below pre-COVID-19 levels.

Furthermore, the major retailers are reporting strong business, with positive updates over the past fortnight from Adairs (ADH), Nick Scali (NCK), Beacon Lighting (BLX), Super Retail (SUL), JB Hi-Fi (JBH), Kogan.com (KGN), Harvey Norman (HVN) and Wesfarmers (WES).

We remain extremely bullish on Australia and the market, and reiterate our overweight stance and 6500 12-month ASX 200 index target.

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