What:
A recent slew of negative economic statistics and profit downgrades have cast further doubt over any imminent recovery for retail stocks. Major landlords may also have less power in enforcing current lease rates.
On Tuesday both the Reject Shop Ltd (ASX:TRS) and Pacific Brands Limited (ASX:PBG) issued profit downgrades, falling 12% and 9% respectively. In common they blamed a fall in consumer sentiment stemming from the Federal budget and unseasonably warm weather that reduced anticipated sales of the winter range. The following day Flight Centre Travel Group Ltd (ASX:FLT) cited the same causes for lowering expectations for full-year profit.
Recent economic releases have been largely downbeat. For the first time in five months job advertisements declined in May, according to the ANZ survey. This supports a prior Roy Morgan survey indicating a decline in both business and consumer confidence.
So What:
In addition to the above concerns, structural challenges posed by online competitors, would suggest conditions do not bode well for other retail stocks including Harvey Norman Holdings Limited (ASX:HVN) and JB Hi-Fi Limited (ASX:JBH). Further profit downgrades may well be in prospect.
Additionally, investors should be wary of major landlords, such as the domestic retail-focused Westfield Retail Trust (ASX:WRT) and FED CNTRES STAPLED (ASX:FDC) , formerly Centro Retail Australia, the vertically integrated Australian Real Estate Trust specialising in the ownership and management of Australian shopping centres.
Looking for alternative investments:
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