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JB Hi-Fi, Harvey Norman, Myer: Retail sector review

One of the key factors that worked in favour of retailers coming into the financial year that has just ended was the horrible previous year. Investors who cast their mind back to 2011 and 2012 will remember the headwinds facing discretionary retailers. Retailers were facing headwinds from online shopping, new foreign entrants and weak consumer sentiment to name just a few. As the first chart shows below, the performance of leading retailers JB Hi-Fi (ASX: JBH), Harvey Norman (ASX: HVN) and Myer (ASX: MYR) all suffered from these headwinds in FY 2012 and consequently their share prices were knocked down significantly.

retailchart1

As can be seen from the chart, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) lost 9% in FY 2012, these three retailers fell between 24% and 48%.

The sell-off left the retail sector battered and bruised and of course unloved – which is often the perfect setting for Foolish investors to snare a bargain. Often, exactly when investors can only imagine things will continue get worse, things actually often begin to improve. In the case of retailing, early in FY 2013 a number of retailers began reporting improved comparable store sales numbers, which are a closely watched metric by investors. These “signs of life” in the sector put a rocket under the share prices of many retailers.

True to form, as the next chart shows, after being the worst performer of the three in FY 2012, JB Hi-Fi turned around and became the best performer in FY 2013. Myer, the second worst performer in FY 2012 became the second best performer in FY 2013, while Harvey Norman which had managed to drop the least in FY 2012 went up the least in FY 2013.

retailchart2

Source: Google Finance

Foolish takeaway

Throughout all these up and downs, these retailers have continued to pay dividends. Purchasing these stocks when they were most out of favour not only provided large capital gains to investors but also dividend income.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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