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Why these 3 S&P/ASX 200 retail stocks are the ones to watch

The discretionary retail sector is a volatile beast, with its overall health heavily dependent on how much other spheres are pulling on the purse strings of consumers.

But these 3 S&P/ASX 200 retail stocks seem to be having a good week, here’s why.

JB Hi-Fi Limited (ASX: JBH)

Many investors have been tempted to sell their JB Hi-Fi shares of late as sentiment for the home entertainment product retailer has waned off the back of slowing sales growth and a downgrade of its full year NPAT guidance to $230 from between $235 million and $240 million.

Analysts from Deutsche Bank slapped a hold rating on the stock earlier this month, downgrading from a buy, which could have spooked investors even further, yet JB found itself near the top of the S&P/ASX 200 gains list for three consecutive days this week, with share prices closing at $23.30 on May 16 up from just $22.05 on May 11.

JB shares are back down today, albeit only slightly, sitting at $23.25 at the time of writing as it seems investors go hot and cold on the stock as competitors like Kogan.com Ltd (ASX: KGN) and online giant Amazon threaten to gobble up their market share in the medium term.

I think we will have to accept a certain level of volatility will follow JB Hi-Fi around for the time being, as competitor movements could knock earnings while things reach a new normal in the space.

For now, while JB has downgraded its NPAT guidance by 3% it has made no changes to sales guidance figures and has blamed “short term unfavourable weather conditions” on the profit expectation drop, which is not expected to impact medium or long-term performance.

Interested buyers should keep a close watch on further price drops as JB looks to be hovering somewhere near buy territory at present.

Super Retail Group Ltd (ASX: SUL)

Auto, leisure and sports speciality retailer Super Retail Group Ltd shares have started the day up again today – rising 1% to $8.37 at the time of writing – after spending yesterday at the top end of the S&P/ASX 200 gains list.

Super Retail reported sales growth of 4.4% and 2.2% respectively for its Supercheap Auto and Rebel Sports segments earlier this month, while BCF sales dropped back 0.4%.

The company is positive about its recent Macpac acquisition – expected to contribute circa $5 million EBIT in FY18 with overall EBIT forecasts said to be in line with the previous corresponding period.

Super Retail shares have been rallying upwards from a sharp decline in mid-March signalling a buy opportunity for investors with the stock on their watchlist.

Ord Minnett upgraded the stock from a hold to a buy in early May – lifting its price target from $8.00 to $9.00.

Super’s leisure segment needs to make a turnaround pretty soon to stay viable, but there is hope the onboarding of Macpac will do just that, and the proof will be in the pudding as full year figures are handed down in August.

Harvey Norman Holdings Limited (ASX: HVN)

Many investors keep watch on retail industry stalwart Harvey Norman Holdings Limited as the yardstick for how the overall industry is tracking.

Harvey Norman has suffered through some tough times in the last 12 months, but its share price has been back on the gains list this week – climbing up from its mid-April low of $3.35 to sit at $3.55 at the time of writing – a slight drop back from yesterday’s close.

Harvey Norman reported a NPAT decrease of 19.3% for the half-year ended December 31, 2017 – dropping from $257.29 million in the previous corresponding period to $207.69.

Since then the retail giant has clung on, alongside beleaguered peer Myer Holdings Ltd (ASX: MYR) whose weak quarterly sales update has most likely caused its share price to plunge today – down 3.4% to 42c per share at the time of writing.

It will remain to be seen if the winter months in Australia can do anything to boost Harvey Norman’s electronic sales in the very least, but plenty of investors still see value in the sector and players like Premier Investments Limited (ASX: PMV) certainly continue to defy the odds.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments 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 Scott Phillips.

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