Brokers’ top retail stock picks on the back of a surprising jump in retail sales

The surprising surge in retail spending comes hot on the heels of positive market updates from some of our listed retailers.

The earnings environment for the sector may not be as bad as what many had feared for most of last year and is prompting investors to return to the embattled sector as some believe the spending strike by Aussie consumers may be over.

But don’t be fooled into thinking that all listed retailers will do well. In fact, the prospects for department store Myer Holdings Ltd (ASX: MYR) isn’t any rosier despite the 1.2% jump in retail sales for the month of November.

The figure is three times higher than what economists were expecting and is well ahead of Octobers 0.5% rise.

However, department store sales actually fell 1.1% for the month, and that is not good news for Woolworths Group Ltd’s (ASX: WOW) BigW chain and Wesfarmers Ltd’s (ASX: WES) Kmart and Target department stores.

One way investors might want to separate the wheat from the chaff is to look at what most brokers are recommending as a buy. There are three specialist retailers that standout based on consensus recommendation.

The first is household products company Adairs Ltd (ASX: ADH), which is surging 7.6% to $2.26 today following a bullish market update.

Management said like-for-like (LFL) sales jumped 14.8% in the six months to end December 2017, which implies a whopping ~17% increase in the last 11 weeks of last year.

LFL is an industry term that reflects the sales growth of stores that have been opened a year or longer.

According to Reuters, all four analysts covering the stock rate it a “buy” or “outperform”.

Another retailer that has given a bullish update and have overwhelming support from analysts is women’s apparel retailer Noni B Limited (ASX: NBL).

The company said that earnings before interest, tax, depreciation and amortisation (EBITDA) in the first half of FY18 will come in around 50% above the same period last year when it posted an underlying EBITDA of $14.3 million.

The growth is driven by store rollouts with its network expanding to 642 outlets from 614 outlets, and a 3% increase in LFL sales.

Another favourite among brokers is Super Retail Group Ltd (ASX: SUL). Shares in the specialist retailer that includes automotive parts and outdoor camping has surged 7.3% over the past month and is up 3.6% today at $8.77.

There’s still lots of room for the stock to climb. Despite the recent outperformance, the stock is lagging the sector as it has lost 14.5% of its value on a 12-month basis when the S&P/ASX 200 Cons Disc (Index:^AXDJ) (ASX:XDJ) is up over 8%.

Of the 11 analysts covering the stock, eight of them have a “buy” or “outperform” recommendation on the stock.

Looking for another hot investment opportunity? The experts at the Motley Fool believe this sector is even better placed to run ahead in 2018 and beyond.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Super Retail 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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