Traditionally, the first quarter of any financial year is not the greatest for retailers. The strongest trading period usually occurs during the Christmas trading cycle that goes from November to the start of the new year.
This important retail period has been boosted by additional events such as Black Friday and Cyber Monday.
Here are 4 ASX retailers that are well poised to get a boost from the Christmas trading period.
Adairs Ltd (ASX: ADH)
Adairs is a home furnishings retailer with more than 160 specialty stores in Australia and New Zealand. The company’s trading environment is expected to improve with lower interest rates and tax cuts leading to better consumer confidence. In addition, the company recently acquired Mocka, an online home and living products designer and retailer.
At the company’s annual general meeting (AGM) in late October, management declared comparable sales growth of 3.3% for the first 16 weeks of FY20. Online sales are a material contributor to the underlying profit of Adairs, increasing 16.6% for the first quarter of FY20.
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting Group is a retailer with a network of 50 stores across Australia, specialising in baby and toddler products. The retailer saw an 8% increase in online traffic during the Black Friday period. At the company’s AGM in October, Baby Bunting management cited a slowdown in sales growth since August. Despite a slowdown in growth, management maintained guidance for FY20 citing the company’s gross margins from its private and exclusive label products.
Baby Bunting smashed market expectations earlier this year when it reported results for FY19. The company reported a 37.4% increase in earnings before interest, tax, depreciation and amortisation, a 43.3% lift in net profit and a 21% jump in total sales. In a struggling retail environment, the company’s strong sales performance was driven by new and improved product range and better import arrangements with suppliers.
Beacon Lighting Group Ltd (ASX: BLX)
At Beacon Lighting’s AGM earlier this year, management highlighted improved momentum in comparable sales from August to September. Strong sales during the first quarter should raise optimism over the company’s performance during the Christmas period.
Management also cited stronger growth in FY20 on the back of an improving housing market and increasing renovation expenditures. Beacon does face multiple headwinds however, including low housing churn, a weakening AUD and reduced mortgage lending and refinancing.
Lovisa Holdings Ltd (ASX: LOV)
Fashion jewellery retailer Lovisa saw a 149% increase in online page views during Black Friday of 2019. At the company’s AGM, management reported comparable sales growth of 2.3% for the first quarter of FY20.
Lovisa is projected to open more international stores in FY20, especially in the US, where the company has 33 stores currently trading in 5 states. The company has a great long-term growth trajectory and is expected to return to its 3–5% growth range target if retail conditions improve.
Should you buy?
Reporting season earlier this year showed promising signs that the retail sector and consumer consumption is improving. Although not all retailers will benefit from improved conditions, there are some that are well poised to capitalise.
The companies most likely to benefit are retailers that are rolling out more new stores and have a strong online presence with double digit online sales. I think a prudent strategy for investors is to keep these retailers on a watchlists and wait for positive price action before making an investment decision.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.