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Wesfarmers Ltd, Woolworths, Metcash Limited: Food retailing industry rises the most

Just as Woolworths Limited (ASX: WOW) reported a half-year 6% rise in sales for continuing operations, the Australian Bureau of Statistics released its monthly retail trade trends and estimates for December, showing food retailers leading the pack with a 2.5% seasonally adjusted estimate gain.

This sub-industry’s trend was also up 0.6% for the month, continuing its steady climb over the past two years. It shows the strength of defensive industries when the general economy is sorting itself out, and consumer discretionary spending isn’t decisively driving retail sales growth.

Major food retailers

The other major food retailers, Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) have not reported their latest figures yet, but a rise from Woolworths may be a good sign for its competitors.

Metcash did have a 25.4% increase in NPAT in its half-year ended 31 October 2013, bringing it back more in line with previous corresponding periods.

Wesfarmers reported a 6.3% NPAT rise for the year ended 30 June 2013, although sales were relatively flat for that year. It will be reporting its half-year results later this month.

All three operate liquor and hardware/DIY stores such as Masters and BWS (Woolworths), LiquorLand and Bunnings Warehouse (Wesfarmers) and Cellarbrations and Mitre-10 (Metcash).

Department stores

Department store retail trend gained 0.4% over the month, and the seasonally adjusted estimate rose as well by 0.3%.  Overall, for the past two years the trend has been relatively flat, and this would coincide with the economy beginning a recovery phase.

If we can see steady growth throughout 2014, then there were be more cause to say discretionary spending was truly on the mend. Investors should look for signs of this in the results and updates of David Jones Limited (ASX: DJS) and Myer Holdings Ltd (ASX: MYR).

Footwear, clothing and personal accessories

Fashion, footwear and accessories kept up their rise with a 0.7% gain, yet the seasonally adjusted estimate fell 2.1%. Within the sub-group, clothing fell by the most – 2.7% down. Premier Investments Limited  (ASX: PMV), Specialty Fashion Group Ltd. (ASX: SFH), Kathmandu Holdings Ltd (ASX: KMD) and RCG Corporation Limited  (ASX: RCG) are the stocks you will need to follow as they report holiday season sales.

Foolish takeaway

There is still a defensive manner to the way the economy is progressing. Lower interest rates usually are one of the precursors of a rising economy, because the central bank is trying to prime the markets for growth by making borrowing costs cheaper.

This hasn’t paid off as deeply as people would like, though some sectors such as housing are reacting well. Job security is still an issue and there is even talk of a rise in unemployment. Clearly, all the factors for an expanding economy are not aligned, so they will take time. Investors need to see where growth is coming from, and look in those industries that may be oversold to find bargain stocks.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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