MENU

These are the potential winners and sinners in the retail sector this reporting season

Credit: Bill Dan

This reporting season will be a nail-biter for consumer-facing companies as there are few other sectors on a knife-edge like retail with the industry facing disruption and an uncertain operating outlook.

I think the gap between those that can prove their resilience and those who can’t will widen this month when listed companies hand in their profit results and issue an outlook statement.

Knowing the right horse to back in August will be key if you want to beat the market and there are a few retail-exposed stocks you might want to avoid in the near-term.

The first one that I think could disappoint is Coca-Cola Amatil Ltd (ASX: CCL). The stock has performed very well with its share price rallying 13% this calendar year compared to the 4% gain on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

I think the stock is starting to look expensive and that leaves little room for bad news at its results. But the risk of disappointment is growing with some brokers noting that the quarterly profit announcement from the NYSE-listed mothership, The Coca-Cola Co, suggested that growth in markets under the ASX-listed entity will be weak (click here for more details).

Another consumer-facing company at risk of disappointing the market is pizza delivery group Domino’s Pizza Enterprises Ltd. (ASX: DMP).

Some steam has been coming out of its share price recently but its share price is still up a robust 16% since the end of the last reporting season in February.

I think the market may be anticipating a small earnings miss with management targeting a 20% increase in profit for FY18, but the thing that could trigger a sell-off is its outlook for FY19.

If Domino’s can’t hit 20% in the last financial year, it could suggest a lower growth rate for the current year, although acquisition opportunities could bolster its earnings outlook. Nonetheless, I would take profit on the stock now and look to buy in after its results if management can pull a rabbit out of its hat.

On the flipside, homewares and home furnishing retailer Adairs Ltd (ASX: ADH) is a favourite among analysts with all four brokers covering the stock rating it a “buy”, according to data on Reuters.

Adairs upgraded its earnings guidance in April with the group expected to deliver sales of between $310 million and $315 million and earnings before interest and tax of $44 million to $46.5 million for the year ended June 30, 2018.

Morgans thinks management can hit the top end of its guidance, which will put its results slightly ahead of consensus.

“ADH is cycling strong comps for the first time in c12 months and therefore consensus is factoring in benign growth in FY19,” said the broker.

“If ADH produces LFL [like-for-like] sales growth of at least c3.5/4%, we think the stock will be rewarded.”

There’s another emerging stock that the experts at the Motley Fool are urging investors to watch. It’s delivered a strong performance over the past year but looks primed to keep running ahead of the market in FY19.

Click on the free link to find out what this stock is.

The ASX small cap up 285% with no sign of stopping...

One Australian company has developed a state of the art device that's revolutionizing hospitals all over the world. Even better, this device is so profitable that the company rakes in 90% margins. That's a lot of cash. So no wonder the stock's up 285% since 2008 – with no signs of stopping...

To discover the name and code, simply click the link below. You'll discover our expert's #1 medical technology pick... and you can decide for yourself whether to get invested today.

Click here to claim your free report.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Coca-Cola Amatil Limited and Domino's Pizza Enterprises 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.