This has been a tough year for our listed retailers with the share prices of many of the best-known names in the sector tumbling into a "bear market" from weak wage growth and the arrival of US online shopping giant Amazon.
While there are exceptions, sentiment towards retail related stocks is pretty negative.
You only have to look at the 20% fall in the value of electronic chain JB Hi-Fi Limited (ASX: JBH), the 36% drop in department store Myer Holdings Ltd (ASX: MYR), the 29% slump in Reject Shop Ltd (ASX: TRS), and the 27% retreat in Harvey Norman Holdings Limited (ASX: HVN) to appreciate how downtrodden the sector is.
A bear market typically refers to a drop in value of 20% or more. But this bear market slump is likely to entice value investors to trawl through the discount bins to pick up a bargain.
From this perspective, Deutsche Bank thinks you should put Harvey Norman in your shopping cart following the electronics and furniture retailer's trading update yesterday.
Management said sales made by franchisees in Australia increased by a pleasing 4% for the period 1 July 2017 to 28 August 2017 compared to the same period last year. On a like-for-like (LFL) basis, which compares sales from stores opened for at least a year, the increase is 3.2%.
What is more pleasing is that sales seem to be accelerating with revenue up 4.8% from 1 July to 31 October this year (or 4% on a LFL basis).
The retailer's New Zealand and Singapore operations also seem strong with LFL sales growth of 3.1% in local currency terms for the former and 5.4% for the latter. The broker also noted that its performance in Ireland and Europe is also improving and that sales were generally ahead of its expectation for every region.
"This was a strong update in our view. Sales grew across every country and momentum from the important Australian Franchising business accelerated. This is a very good outcome given the increasing concerns around consumer sentiment and potential softening in housing," said Deutsche.
"Importantly, this level of sales growth should be sufficient to drive further operating leverage and margin expansion."
The bullish trading update and the fact that ASIC has cleared Harvey Norman over potential accounting issues have prompted Deutsche to reiterate its "buy" call on the stock with a price target of $5.50. Harvey Norman's share price is up 1.7% in early trade to $3.84.
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