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5 retail shares in danger of declining in 2017

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.

Whilst those five shares could face declines next year, the smart money is on these hot stocks being big winners in 2017. Is yours?

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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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