Last week, one investment bank voiced its expectation that cyclical and consumer discretionary companies should show healthy full year earnings growth for this financial year. With this current benign economic climate, the improvement we’ve seen over the past year in the retail industry is giving investors something to look forward to.
Foreign brands are taking up more store floor space and foreign stores are opening new stores with the same expectation that the domestic market is ready to take off again. Even the surprise takeover bid for David Jones Limited (ASX: DJS) by South African, Woolworths Holdings Limited (Johannesburg: WHL), in some ways implies the department store could still be had at an attractive price. It also is a sign that the suitor company sees growth potential in the market here.
I agree. The latest round of most retailers’ interim earnings growth has been acceptable if not a little surprising. The surprise is mostly from the market being used for slower growth and weaker like-for-like sales.
Going forward, I would look at these retailers for further growth as consumers begin returning to shops and purchase more online.
Super Retail Group Ltd (ASX: SUL) is down about 25% from its October high of $14.09. In January, it released a trading update showing a 6% gain in revenue, yet some like-for-like segment figures were a little weak, prompting a sell-off.
The share price has stayed around $10.50-$11.50 since then. The company attributed some of the weaker sales to the mining pullback, yet I would look towards regular consumers filling in the gap more from here on out.
Its PE is 17 and the dividend yield is 3.7%.
Harvey Norman Holdings Ltd (ASX: HVN) saw a 36% rise in interim net profit, thanks to increased property revaluations. Earnings per share were up similarly. Excluding the revaluations, net profit was up only 3.6%.
Its share price is close to setting a new 52-week high above $3.42. Its PE is 18.3 and the dividend yield is 3.0%. The company may see more sales as a knock-on effect from the rise in housing construction, when people may want to buy more household goods for their new homes.
The retailer with one of the best share price rises over the past 12 months is Kathmandu Holdings Ltd (ASX: KMD), up about 76% to $3.41. The specialty outdoor equipment and apparel retailer had a 10% increase in sales in the interim, yet because of the stronger Kiwi dollar, earnings of the New Zealand-based company were impacted.
The company is expanding the business and brand name internationally by entering the UK market and further developing its online store sales. The stock’s PE is 17.6 and the dividend yield is 3.1%.
With inflation rising at a lower-than-expected rate and interest rates still low, consumer spending has the fuel needed to increase from here. Retailing should be setting up for a better performance going into next year.
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