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Harvey Norman shows strong growth

Retailer Harvey Norman Holdings (ASX: HVN) says it has seen a 4.3% increase in like-for-like sales across its global operations for the three months to September 2013.

Harvey Norman, which has operations across Australia, New Zealand, Slovenia, Croatia, Ireland and Northern Island also reports that preliminary accounts for the period July 1 to September 30 indicate profit before tax and minority interests for the company came in at $58.2 million, an increase of 16.2% over the previous corresponding period.

Today, the Australian Bureau of Statistics (ABS) reported that retail sales had climbed 0.8% in September 2013, following a rise of 0.5% in August and a rise of just 0.1% in July. The pattern indicates that retail sales are recovering, and as Harvey Norman noted, retailers will be looking forward to having a strong Christmas sales period.

Like competitor JB Hi-Fi (ASX: JBH), landlord Westfield Retail Trust (ASX: WRT) and department store retailer David Jones (ASX: DJS) before it, Harvey Norman noted that the company had not seen a post-election boost to consumer spending. It may not be noticeable, but it seems consumers are slowly returning to spending as confidence increases. Much of that confidence has come from rapidly rising house prices and a share market that has been on fire. The S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained 18.5% over the past twelve months.

The retail sales news and evidence from individual company reports suggests the Reserve Bank of Australia (RBA) is likely to be pleased with the progress of growth in the non-mining sectors, and a rate cut this calendar year seems highly unlikely. The RBA last cut the official cash rate at its meeting in early August to a record low of 2.5%. That had followed an 18 month period where rates were trimmed, to stimulate the economy in the face of a decline in mining investment.

Foolish takeaway

Harvey Norman shares are now up over 76% in the past year, while JB Hi-Fi has seen its shares more than double. That suggests that the lion’s share of price gains may have already been priced in, with Harvey Norman now trading on a prospective P/E ratio of 16 times, and looking fair value.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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