ASX retail share investors may need to heed the warning from the update by Best & Less Group Holdings Ltd
(ASX: BST).
Best & Less is a retailer that sells value clothes across 250 physical stores.
Retail conditions bite hard
The company gave an update in mid-May about weakening sales and foot traffic, and today’s update was another sign of difficulties.
For the five trading weeks from 15 May to 18 June, total sales were down 11.7%, or $9 million below the prior corresponding period, and like-for-like sales were down 13.2%. In the 24 trading weeks in the second half of FY23 so far, like-for-like sales were down 4.5% year over year.
The company said that Ray Itaoui joined Best & Less as Executive Chair on 5 June 2023 and is acting as the interim CEO. He has “implemented a range of actions” to position the ASX share for more challenging trading conditions.
Best & Less’ gross profit margin is being impacted in the fourth quarter, and this is expected to continue in the first quarter of FY24 as it has accelerated its promotional and discount activity to clear winter stock and reduce inventory to be aligned with current demand and maintain inventory quality.
The company was previously guiding that underlying (pro forma) net profit after tax (NPAT) is expected to be between $10 million and $12 million. It’s now expected to be between $3.6 million and $4.2 million.
Takeover
Last month, the ASX retail share received a takeover bid and that offer has now been declared unconditional. The bidder and associated entities now have voting power of approximately 66.46%.
The bidder has extended the closing date for the offer to 7pm on 27 June 2023.
In light of the trading conditions, the bidder warned that if they don’t accept the offer before the end of the offer period, there is a “material risk that upon expiry of the offer period, the Best & Less share price may fall below the offer price”.
Considering the cash offer is $1.89 per share and the bad update, I’d be inclined to accept the offer, though this is also the possibility of staying invested and hope the new owners can turn things around.
What does this mean for ASX retail shares?
I certainly think this shows that shoppers at the value clothing store are spending less. Every retailer is different, but most households are being squeezed by higher inflation and higher interest rates.
I was surprised that strong retail demand lasted as long as it did over the past 12 months, but now I’m a bit surprised at how rapidly things have dropped off considering interest rates started rising over a year ago.
Despite that, any large sell-offs could be longer-term opportunities, in my opinion.
