Australian consumer staple stocks (INDEXASX: XSJ) are on track for a modest 1% gain in the first half of 2024 (1H24), significantly underperforming the broader benchmark index (XJO). The muted performance reflects a challenging environment characterized by sticky inflation and cautious consumer spending.
Woolworths Faces Worst Half-Year Since 2016
Woolworths Group (ASX: WOW), Australia's leading supermarket chain, has seen its shares drop by 9.6% in 1H24, marking its worst half-year performance since 2016. Persistent inflation has squeezed household budgets, leading consumers to cut back on spending.
Westpac's senior economist noted that consumer pessimism prevails, fuelled by high inflation and fears of potential interest rate hikes by the central bank. "The consumer spending environment remains muted, having risen by just 0.1% per month on average since January," said a Commonwealth Bank of Australia (CBA) analyst.
Coles Outperforms Woolworths
In contrast, Coles Group (ASX: COL), Australia's second-largest grocer, has risen 6.7% year-to-date (YTD). UBS analysts have a positive outlook for Coles, predicting its sales growth to exceed that of Woolworths in the calendar year 2024 (CY24) and anticipating a recovery and expansion in EBIT margins.
Discretionary Consumer Stocks See Better Performance
While staple stocks have struggled, discretionary consumer stocks (INDEXASX: XDJ) are set to end the first half more than 8% higher. This sector's gains have been driven primarily by retail conglomerate Wesfarmers (ASX: ASX:WES).
However, Jefferies had earlier cautioned the Australian retail segment about potential scrutiny from local media, political figures, and regulatory bodies. This warning underscores the sector's ongoing challenges despite recent gains.