Citigroup picks retail stocks that are best placed to beat profit expectations in August

Retail conditions may be challenging but there's a handful of small retailers that are likely to deliver pleasant earnings surprises next month.

| 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

The retail environment isn't getting any better. If anything, macro conditions could become more challenging although this doesn't mean all retail stocks will disappoint at the next profit reporting season.

On that happy note, Citigroup has looked at the small cap retailers under its coverage to pick the stocks that are best placed to deliver a pleasant earnings surprise next month.

The stocks that are best placed to beat the street (meaning to deliver profits above consensus forecast) include footwear company Accent Group Ltd (ASX: AX1), furniture retailer Nick Scali Limited (ASX: NCK), apparel and stationery group Premier Investments Limited (ASX: PMV) and auto accessories and outdoor gear chain Super Retail Group Ltd (ASX: SUL).

Industry feedback suggests that footwear sales in the January half remained strong and Accent should be well placed to capitalise on this though its new product launches (such as Nike) and strong momentum in its licensed brands Vans and Sketchers.

Citigroup also believes favourable weather trends and lower levels of discounting could help management deliver a 5% to 10% upside to consensus forecast for FY18.

Meanwhile, the broker thinks Nick Scali's FY18 forecast of 5% to 10% net profit growth for the full year may be too conservative despite growing industry headwinds with the softening property market.

Citigroup's optimism stems from a strong January trading performance (apart from the first week), a 12% increase in customer deposits at the end of December 2017 with a strong order book and cost management.

It is also worth pointing out that management has a tendency to under-promise and over-deliver and has an excellent track record in retailing.

Much can also be said about the quality of management for Premier Investments, in my opinion, and Citigroup points out that favourable weather, strong Mother's Day trading, and improving womenswear fashion trends in winter will likely bolster the group's second half performance.

"We expect 2H18e LFL [like-for-like] sales growth to accelerate 100bp on 1H18," said the broker.

"The company does not provide guidance, but still benefiting from the ramp-up of store openings at Smiggle UK."

Finally, Citigroup sees upside earnings risk for Super Retail thanks to resilient LFL sales and stable margins as gross margin expansion offsets increasing costs of doing business, particularly in relation to its online expansion.

The broker has a "buy" recommendation on Accent and Super Retail, but a "neutral" on Premier Investments and Nick Scali.

Looking for an emerging stock that is likely to beat the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index in FY19?

The experts at the Motley Fool have uncovered such a gem and you can find out what this stock is for free by clicking on the link below.

Motley Fool contributor Brendon Lau 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.

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 »