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Time to shop for retail stocks?

Australian Bureau of Statistics (ABS) data out today shows a pleasing improvement in seasonally adjusted retail trade for August of 0.4%. This increase follows a rise of 0.1% in July and sets the growth in Australian retail turnover for the year to August 2013 at 2.3% seasonally adjusted.

Importantly for retailers including David Jones (ASX: DJS) and Myer (ASX: MYR), the largest contributor to the increase was department stores, which saw a 6.4% rise in trade for the month.

The data also showed positive trends for clothing, footwear and personal accessory retailing with a rise of 0.3%. This result bodes well for a number of listed stocks including Kathmandu (ASX: KMD) and the owner of brands Smiggle and Just Jeans, Premier Investments (ASX: PMV) which both recently reported upbeat results.

The data wasn’t so good for retailers such as Harvey Norman (ASX: HVN) and Fantastic Holdings (ASX: FAN). These companies are are exposed to the household goods retailing sector which recorded a 0.6% fall in trade. However given their exposure to the housing sector, which appears to be in the early stages of a recovery, they could be expected to enjoy a boost in coming quarters.

As recent results from retailers including Kathmandu and JB Hi-Fi (ASX: JBH) have shown, some retailers have adjusted much better than others to the tough retail trading environment. With a strong rally in the share price of many retailers, investors need to be careful in evaluating just how much expectation for higher earnings is already priced into retail stocks.

Foolish takeaway

Heading into the critical Christmas period, which is when many discretionary retailers make most of their money, an uptick in retail trade is certainly a positive. If companies can report positive comparative store sales growth in the upcoming quarters it could certain bode well for a corresponding uptick in share prices.

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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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