The Forager International Shares Fund has owned shares in German-based, European DIY retailer Hornbach Baumarkt (DB:HBM) since 2013. It hasn’t been a great investment. Some of its recent numbers, however, bode well for Europe as a whole.
The above chart shows like-for-like sales growth of the company’s stores outside of Germany. Those 56 stores, up from around 30 a decade ago, are in Austria, Czech Republic, Luxembourg, Netherlands, Romania, Slovakia, Sweden and Switzerland. Germany, not represented in this chart, has had some specific issues. But the trend for the rest of its European stores looks interesting.
Like-for-like sales growth is an important analytical tool for retailers. It shows how the average established store is performing, by removing the impact of newly opened stores. In this case, it also assumes no change in exchange rates where those stores sit outside the Euro currency area. So this chart shows the average growth rate of seasoned stores, on a quarterly basis compared with the same quarter a year earlier.
Growing impressively for years leading up the mid-2000s, like-for-like sales growth evaporated in the financial crisis and then turned deeply negative in the Euro crisis. It’s taken years to get back on track.
Recovery in Europe
There are quirks in the data. Some quarters have more trading days than others. Growth in the store network can distort the measure a bit (new stores take more than 12 months to ‘season’). Some winters are deep. Some summers are wet. But the past 12-18 months has clearly been the best trading environment for DIY in Europe in nearly a decade.
Perhaps it means nothing. Perhaps it’s a Draghi-inspired dragging forward of demand across Europe, with a hangover to come. But it is suggestive of a decent recovery. It also stands in stark contrast to the fact of negative interest rates in most of these countries.
8 thoughts on “Is Europe recovering?”
The international stores are the newer ones. Maybe there is simply some maturation which drives the like for like sales. A Store needs some time to be fully utilized by the customers.
It’s a good point Martin, that’s what I was hinting at saying ‘Growth in the store network can distort the measure a bit’. I think I can see a good recovery there despite that. Time will tell.
I believe that the role of demography in economics is vastly under-appreciated. Back in April/May 1945, German and Italian servicemen became the first of millions to be demobilised and sent home, where they duly created the baby-boomer generation.
Allied servicemen generally remained in service much longer because they were needed to occupy the former axis territory, and when this was done, it took time to (literally) ship them home.
Accordingly, retail and consumption trends in Germany and Italy that are relevant to demography, can be well worth watching because they can potentially hold some predictive value for what might happen in places like the USA or Australia.
On the matter of demography, Niels Jensen’s Absolute Return Letter often covers the topic. Niels is 100% in agreement with SG that it’s an underappreciated topic, I tend to agree but forget from time to time. It’s free to subscribe. Worth it for anyone interested in demography and macro matters.
In my experience, a sharply weaker currency almost always portends to somewhat better economic outcomes than generally expected 12-24 months hence, with the same being true in reverse (the 2013 Yen sell-off being a clear exception here, due to exaggerated hopes about “Abeonomics”. People have been surprised the US has slowed down a bit over the past 12 months, but is it really any surprise after a 20% strengthening in the currency?
Equally, a weak Euro is likely helping the EU, at the margin. I would argue a weaker AUD has also helped to cushion what would otherwise have been a sharper domestic slowdown at home (although I suspect there is more pain to come medium term).
So to ensure the global economy is headed for prosperity, all that we need do is engineer a synchronised lower currency for every country on the planet???
Btw, a weak Euro has been helping Germany, and others, for a long time. Nothing marginal about it.
You’ve both touched on an important point here. 2011-14 the Euro was higher, 1.20-1.40 vs the USD. 2015-16 it’s been more like 1.05-1.15. Some of their stock would be USD and RMB sourced, so there is likely some general inflation component in that like-for-like sales improvement. Still, I’m pleased it’s taken rather than hurt volumes.
When the GFC hit and everything went pear shaped (with the exception of WA and the rest of Australia by proxy) the whole world took a tumble. But it wasn’t only in dollars, it was in mood as well (funny how the same “depression” term is used in economics and psychology). Way back then I put my own time limit on this “thing” and figured we were up for around 10 years of the Mum & Dad economy staying in nervous mode (given historical data). Ten years is nearly up so a little light may be shining through. Another element to look at here is that if you took the downside of government debt out of the global equation you would probably see an economy that is pretty healthy. It is only that cloud that is stopping the sun shining through, most of us in the private sector have adapted to this new government anchor drag economy and are doing reasonably well. Let’s hope the European Mum & Dad economy can keep blowing at that cloud.