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3 retail shares that could pick up steam in 2016

Credit: Newyorklegoboy

Today the Australian Bureau of Statistics released its February retail sales report, and for a third consecutive month retail sales have come in below expectations.

The ABS reported that month-over-month seasonally adjusted retail sales came in flat in February, well below the 0.4% increase that the market was expecting. Although the overall figure was flat, some areas of the retail industry performed better and worse than others.

Sales in cafes, restaurants and takeaway food services fell a disappointing -0.2% in February. This could be bad news for the likes of Domino’s Pizza Enterprises Ltd. (ASX: DMP) and Retail Food Group Limited (ASX: RFG).

With analysts expecting Domino’s to produce earnings growth of over 33% per annum for the next couple of years, shareholders will no doubt be hoping that sales in the sector will have picked up in March.

As its shares are trading on such a high earnings multiple presently, failure to live up to these expectations could cause a sharp decline in its share price.

Department store sales were up 0.4% in February. Great news for shareholders of the struggling Myer Holdings Ltd (ASX: MYR). Even better is the news that this area of retail saw the biggest year-over-year increase at 7%.

Analysts are expecting its earnings to be down considerably in FY 2016. This little boost could put the company on a path to defying market expectations and taking the share price higher.

Finally, another notable result was household goods retailing sales which also increased by 0.4% in February. The housing boom seems to be the catalyst for this and the good performance of shares with exposure to it.

My favourite pick in the household goods area of retail is Nick Scali Limited (ASX: NCK). I believe the company has a proven business model that will ensure its success in the long term. As long as the housing boom continues, I would expect its shares to outperform the market.

The same can be said for retail giant Harvey Norman Holdings Limited (ASX: HVN). Its share price has risen by 10% so far in 2016. If household goods retail sales continue to increase this year then I would not be at all surprised to see the share price climb even higher.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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