5 retail shares in danger of declining in 2017

Harvey Norman Holdings Limited (ASX:HVN) is one of five shares which investors may be best avoiding if the property market cools. Here's why…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

According to property information provider CoreLogic, a drop in unit approvals to a two-year low could point to the peak of the residential construction cycle.

The data provided by the Australian Bureau of Statistics shows that approvals fell 23.5% month on month in October, or 41.8% from the prior corresponding period. Since reaching a high in July, approvals have been trending lower ever since.

If the residential construction cycle has in fact peaked this could spell trouble for a number of Australian retailers which have been riding high on the back of the property boom. Here are a few that could be negatively impacted:

Adairs Ltd (ASX: ADH)

Adairs is a leading retailer of home wares and home furnishings. The company has been struggling of late and surprised the market with a shock profit downgrade last month following weaker trading in the first four months of FY 2017. Should the property boom come to an end the company may struggle to turnaround its fortunes.

Beacon Lighting Group Ltd (ASX: BLX)

This light fittings, globes, and ceiling fan retailer has suffered a tough year following the closure of Masters stores and the subsequent sell off of its lighting inventory. Whilst the company has forecast for a much stronger performance in FY 2017, if residential construction has peaked there is a danger that this turnaround may not materialise.

Breville Group Ltd (ASX: BRG)

Although the appliance manufacturer has significant operations overseas, it still derives 42% of its revenue from the Australian and New Zealand markets. Any slowdown in the housing market could cause demand for its products to fall. With its shares changing hands at 21x full year earnings, a drop in earnings growth could send its share price lower.

Harvey Norman Holdings Limited (ASX: HVN)

Harvey Norman has been one of the big winners from the booming property market. In FY 2016 franchisee sales grew twice as fast as they did in FY 2015 to a massive $5.3 billion. This impressive result was put down to its performance in the home and lifestyle market, which was supported by the strong property market.

Nick Scali Limited (ASX: NCK)

This furniture retailer has been a standout performer this year. Its shares are up a massive 43% thanks largely to its record-breaking full year result and strong forward guidance. Although it is a favourite of mine, I wouldn't invest if the housing market cools. A weak Australian dollar is already likely to be a challenge for the company next year as it imports its furniture. Combine that with lower demand and things start to look quite worrying in my opinion.

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »