Why Harvey Norman Holdings Limited shares are falling today

Shares in furniture retailer and superstore franchisor Harvey Norman Holdings Limited (ASX: HVN) edged lower today after the group posted upbeat sales numbers for the quarter ending September 30 2016.

In its core Australian market same-store sales were up 5.4% over the prior quarter in a reflection of Australia’s strong housing market across the eastern states in particular.

The group also has substantial franchisee operations in Europe and Asia with total aggregated sales for the quarter at $1.69 billion. This despite falls in European currencies including the British pound providing a headwind to Australian dollar denominated sales numbers.

Harvey Norman remains a founder-led business that is heavily leveraged to the underlying health of housing markets, wage growth, and consumer confidence as its franchisees’ operations rely on strength across this trio of factors to drive sales higher.

The other salient factor helping lift the stock more than 20 percent over the past year is super-low interest rates which support consumer borrowing and the housing markets.

Harvey Norman investors then should be of the view that interest rates in Australia and globally have not bottomed out and if anything are likely to go lower as the share price may tend to move inversely to local borrowing rates.

Other options in the retail space that may offer solid long-term returns include Solomon Lew-led Premier Investments Limited (ASX: PMV), or footwear specialist RCG Corporation Ltd (ASX: RCG).

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find him on Twitter @tommyr345

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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