The best retail growth in nearly two years has failed to fire up ASX-listed retailers with the sector significantly underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index on Monday.
The Wesfarmers Ltd (ASX: WES) share price led retailers lower with a 2.2% drop to $31.26 on a weak profit update, while the JB Hi-Fi Limited (ASX: JBH) share price and Harvey Norman Holdings Limited (ASX: HVN) share price also tumbled by around 1% or more.
The retail sector shed around 1% while the ASX 200 index closed just below breakeven.
Strong growth hides weakness
The Australian Bureau of Statistics (ABS) reported a 0.4% increase in retail turnover in November 2018 following a 0.3% increase in the previous month.
The November figure marks the fastest retail growth pace since April 2017, according to Business Insider, although some experts are warning investors not to be fooled by the robust headline number.
Credit Suisse wrote in a report that retail growth is weaker than it appears due to inadequate seasonal adjustments to the figure and that December is likely to disappoint.
“In 2016 and 2017, December growth rates decelerated sharply compared with November, reflecting the rapid growth of the Black Friday and Cyber Monday sales events; ABS seasonal adjustment is yet to fully capture those events,” said the broker.
“In 2017, the annual growth rate in total retail sales slowed from 2.9% in November to 2.4% in December.”
Winners and losers of 2019
The robust headline growth figure also hides weakness in some niche categories. Cafes, restaurants and takeaway services retailing and department store sales lagged. This doesn’t bode well for the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price and Myer Holdings Ltd (ASX: MYR) share price ahead of the February reporting season.
Unsurprisingly, online sales were a standout with this segment contributing 6.6% to total retail turnover in original terms in November – a rise from 5.9% in October. This is the highest level recorded in the series, according to the ABS.
Picking the best listed retailers for 2019 will be no easy task with Credit Suisse warning investors to beware “value traps” as some beaten down ASX stocks could get cheaper in the months ahead.
The best place in the sector to put your capital is supermarkets with the broker picking the Woolworths Group Ltd (ASX: WOW) share price over the Coles Group Ltd (ASX: COL) share price as the former has the potential to announce a capital return following the sale of its petrol stations business.
Credit Suisse also like the Caltex Australia Limited (ASX: CTX) share price as it develops its convenience retailing business, which is one of the few areas of growth for the industry.
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 COLESGROUP DEF SET. The Motley Fool Australia has recommended 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.