The lazy investor’s guide to Australia’s 4 best retail stocks

It’s been a rough month for the Australian sharemarket! Over the last five weeks the S&P/ASX 200 (INDEXASX: XJO) has fallen a disappointing 4% from a high of 5587 points on the 1 August to today’s open of 5224 points.

The fall was punctuated by a stunning seven-day plunge that saw the index lose 200 points as the tail-end of earnings season disappointed. This included some interesting results from major retailers at around the same time we had some detailed reporting around the reasons for the failure of Dick Smith. So now’s the time to dig into the full and half-year reports. This may allow us to pick apart which companies are Australia’s four best retail stocks.

3 Poor Performers

Blackmores Limited (ASX: BKL) shares fell 26% over the month as investors were shocked by the weak earnings outlook provided by the company, which warned investors to expect first quarter sales to be lower compared to the prior corresponding period.

InvoCare Limited  (ASX: IVC) shares are over 9% higher than they started August as the company reported operating earnings after tax growth of 13.2%, however sales only grew 3.1% year on year leading investors to question whether they should pay around 28x trailing operating earnings for its shares.

ARB Corporation Limited (ASX: ARB) shares are 7% lower than at the start of August after reporting a full-year report that delivered growth but also warned that profit growth had slowed due to supply issues on their side. Too much demand is a good thing, but only if the company can capitalise on it.

4 Top Retail Stocks

Treasury Wine Estates Ltd (ASX: TWE) had an incredible year! Underlying Net Profit After Tax was up 56% on only 19% revenue growth, while the company guided to improving margins (music to shareholder ears). The shares are 14% higher over five weeks.

Retail Food Group Limited (ASX: RFG) shares have popped by 18% since the start of August following strong revenue growth over the past 12 months that saw net profit up 79% and dividends up a handy 18%. Investors are finally starting to believe that management can successfully integrate the last few years’ worth of acquisitions.

One of the great stories of the sector remains JB Hi-Fi Limited (ASX: JBH), which reported revenue growth of 8.3% to $3.95 billion thanks to same-store-sales growth of 5.4% for the year and a 11.5% lift in profit to $152.2 million, beating analysts’ forecasts as well as the company’s own.

Harvey Norman Holdings Limited (ASX: HVN) shares continue to defy gravity, hitting $5.58 in August, the highest the shares have traded at since early 2008. For the year ended 30 June 2016, the company said franchisee sales grew at twice the rate they did in the 2015 financial year – at 7.6% to $5.33 billion. The company has benefitted from a strong property market, and management expects that to continue for the time being, which is great news for investors.

Where to from here?

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Motley Fool contributor Andrew Mudie has no position in any stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group Limited. 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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