How Good Were May Retail Sales Really?

According to a report released by the ABS today, retail sales rose a seasonally adjusted 0.7%. That was well above consensus estimates of a rise of 0.2% and is the strongerst month on month change since November 2007.

However, digging a little deeper shows that more than half the gain came from food which was up 1.0% month on month and most of that was due to price rises. Department Stores, Clothing and Soft Goods and Household Goods all declined.

If there was any doubt about a softening in retail conditions Just Group's profit downgrade today should have put that to rest . Here are the money quotes from that announcement:

Despite positive same store sales growth in the month of June 2008 by Dotti, Smiggle and Jacqui E, overall same store sales for Just Group’s Australian and New Zealand stores declined. Overall gross margins also fell in June 2008 due to the increased level of industry-wide discounting.

The revised Directors’ pro-forma forecast for FY2008 assumes that lower sales, gross margins and profit will also be achieved in July 2008 compared to that anticipated at the date of Just Group’s Target’s Statement.

Just Group’s management believe that the trading conditions are likely to remain difficult for at least six months, at levels lower than those previously anticipated.

Whilst the financial year is over expect to see more of those kinds of statements about the outlook for 2009 when FY08 results are released. Australian consumers are clearly feeling the pinch of higher prices for food and energy and that is set to continue for the medium term.