Advertisement

Firms see robust sales despite TRAIN

Font Size

Divisoria
People are seen shopping at the Divisoria market area -- PHILIPPINE STAR/KRIZ-JOHN ROSALES

By Krista Angela M. Montealegre
National Correspondent

FILIPINOS did not hold back on spending despite higher prices of goods in the first quarter of the year, but elevated input costs would continue to put pressure on the profitability of consumer companies.

COL Financial Group, Inc. Vice-President and Head of Research April Lynn L. Tan said in a phone interview that the impact of the strong remittances, weak peso and the personal income tax cuts likely contributed to robust sales of consumer companies such as retailers, restaurant operators and food manufacturers in the first quarter of 2018.

“We were bracing for that (slower consumption), but surprisingly sales continue to be strong based on January and February numbers,” Ms. Tan said.

Overall inflation rose by 4.3% year-on-year in March, the fastest pace in more than five years on the back of increased prices in food and beverage, data from the Philippine Statistics Authority showed.

This puts the year-to-date figure inflation at 3.8%, near the upper end of the 2-4% target range set by the Bangko Sentral ng Pilipinas (BSP) for the year.

The impact of Tax Reform for Acceleration and Inclusion (TRAIN) Law that took effect at the start of the year pushed up certain indirect taxes, including for soft drinks, as well as increasing the oil excise tax in stages over a three-year period.

Consumer spending is the major driver of the Philippine economy, accounting for about two-thirds of gross domestic product.

SUSTAINED GROWTH
A survey of listed consumer companies showed sustained strength in sales despite these headwinds.

Puregold Price Club, Inc. registered “good” sales in the first couple of months, John T. Hao, vice-president for investor relations of the listed retailer, said in a mobile phone message.

Max’s Group, Inc., the country’s largest casual dining operator, expects consumption to remain “a chief economic driver,” Paul C. Cheah, investor relations officer of Max’s, said in a separate message.

The impact of the tax reform program on sales is “favorable,” Philippine Seven Corp. (PSC) Head of Finance and Accounting Division Lawrence M. de Leon said.

A food manufacturing company, however, warned that unabated inflation could stifle demand for non-staple and discretionary goods.

“I would suppose consumer companies that tap the middle income market still have good revenues but when you look at profits baka mas mahina because of the higher cost that they are not able to pass on fully,” COL’s Ms. Tan said.

The trend of elevated input prices seen in the latter part of 2017 may continue in the first three months of the year given the higher excise taxes as a result of TRAIN and the continuous depreciation of the peso, she added.

Another factor that contributed to the strong sales is that companies have not really jacked up prices significantly despite the higher cost of raw materials.

“They are doing it very moderately. They don’t want a pullback on demand. They are gauging the waters, how the consumers will react,” First Metro Investment Corp. (FMIC) Head of Research Cristina S. Ulang said in an interview.

“We may see a lag before TRAIN affects these companies. If there is a lag on the impact, input costs should have gone down by the time they implement the price increases,” Ms. Ulang said.