Discounted clothing retailer Best & Less
(ASX:BST) is the latest in a string of retailers to report declining earnings, with sales dropping 13.2 per cent in the past five weeks.
The company attributes the decline to increasing interest rates, which are impacting mortgage holders, low-income families, and workers.
Best & Less, known for its affordable kids' and baby clothing, has seen a decrease in foot traffic and has started discounting its winter stock earlier than usual in an attempt to clear inventory.
Other retailers, including Baby Bunting, Adairs, Universal Store, and Super Retail Group, have also highlighted challenging market conditions.
Even Buy Now, Pay Later firm Zip has experienced a 7.4 per cent decline in spending on fashion and clothing during the first two weeks of June.
Stockbroker UBS's survey of 1,000 adults further confirms the deteriorating consumer sentiment in Australia.
The survey reveals that consumers are allocating more of their budget to essential expenses like utilities, rent, and insurance.
The combination of increased mortgage payments due to rising interest rates and reduced discretionary spending is taking a toll on retailers.
The UBS survey indicates that middle-income households are planning to significantly cut spending on entertainment, recreation, dining out, takeaway food, international travel, and other leisure activities.
With the potential for further interest rate hikes, Best & Less is bracing for a challenging period.
Best & Less reported a 13.2 per cent decline in like-for-like sales during the five weeks ending June 18 compared to the same period last year. Online sales have been hit harder than in-store purchases.
Profit has been impacted even more severely as the company's new executive chairman, Ray Itaoui, takes swift action to turn the company's performance around. Itaoui, who is also leading a takeover bid for the company, has wasted no time in discounting winter stock to reduce inventory.
As a result of the challenging market conditions, Best & Less has revised its second-half net profit guidance to be between $3.6 million and $4.2 million, excluding potential impairments, down from the previous guidance of $10 million to $12 million.
The company's shares remained unchanged on Tuesday due to a $1.89-a-share on-market takeover offer from Brett Blundy and Itaoui's BBRC Admin 1, and associated entities, which currently holds a 68 per cent stake in the company.
