Businesses lower earnings expectations as retail sentiment plummets

The outlook is decidedly gloomy for business, according to Dun & Bradstreet, with one in three anticipating declining sales in the September quarter forcing businesses to lower their earnings expectations.

The National Business Expectations Survey, published today by Dun & Bradstreet, reveals that sales expectations are now at their lowest point in 12 quarters, following a fall of 13 index points against June quarter figures.

A decline of 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 surveyed indicated they will not replenish inventory levels in the coming quarter and 15% indicate they will need to discount to move stock.

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.

Dun & Bradstreet’s corporate affairs general manager, Danielle Woods, told SmartCompany that Australian businesses are anticipating a difficult September quarter because of the global environment and what is happening locally.

She says employment numbers from the US are likely to play on markets in Australia as well as the continued uncertainty in Europe.

“Domestically, slowing demand is a big one and how businesses are performing generally flows on and affects outlook for ahead,” Woods says.

“One in three businesses are thinking that their sales and profits are actually going to be lower and firms are reducing plans to replenish stock and are less inclined to employ new staff in the September quarter.

“I think sentiment is going to continue to impact business going forward. We have seen a lot of conservatism in consumer behaviour; while they continue to keep a tight rein on their wallets, things will continue to be subdued.”

Concern over online competition is further dampening retail sentiment, with 58% of retail executives apprehensive about competition from online sellers, up 15 percentage points since last month.

“We are seeing a larger number of consumers tapping into online shopping; part of this is driven by conservatism, if they think they can get something online cheaper, they will do that,” says Woods.

“It is an opportunity for Australian businesses – if business can get into that online space and they can do it well.”

Woods says retail is the one sector that really stood out in the survey.

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.

Gavan Ord, business policy adviser at CPA Australia, says the Dun & Bradstreet survey results are not surprising given anecdotal evidence that is being heard from CPA members: “Business sentiment is quite negative,” he says.

“There are a whole series of factors; but, predominantly, it is concern around what is happening in the euro zone and concern around the pace of growth in China and the pace of recovery in the US. It seems to have come off the boil in the last few weeks,” says Ord.

“Domestically there is the carbon tax, the political uncertainty, the high Australian dollar and consumer confidence is down across the board.”

Ord says there are a series of factors at play in the low sentiment with “no real silver lining”.

“Many have had tough trading conditions since the global financial crisis began and it really has been a tough time for a long time,” he says.

“There is no positive news on the horizon, although we have not seen the last of interest rates cuts, so eventually consumers will start to consume.”