Modest growth in retail spending is predicted in 2020, keeping pressure on for retailers after a difficult 2019. As reported in the Australian Financial Review (AFR), the Australian Retailers Association expects spending to rise 2.4% to 2.6%, an increase on last year but below long-term averages. There is a caveat, however; confidence in the economy must rise sufficiently to allow consumers to spend rather than save.
In 2019, successive interest rate cuts and government stimulus spooked consumers, who feared for the state of the economy. Savings were used to pay down debt rather than spent, with retail sales growing at the slowest rate since the global financial crisis. As the housing recovery takes hold, however, consumer confidence may start to return, provided the jobs market remains stable.
As reported in the AFR article, Citigroup's top retail picks for this year are those exposed to a rebound in discretionary spending, including Super Retail Group Ltd (ASX: SUL), Accent Group Ltd (ASX: AX1), Lovisa Holdings Ltd (ASX: LOV) and Michael Hill International Ltd (ASX: MHJ). UBS' top picks include Super Retail Group, Myer Holdings Ltd (ASX: MYR), Adairs Ltd (ASX: ADH) and Premier Investments Limited (ASX: PMV). We take a look at these shares below.
Super Retail Group
Super Retail Group shares are currently trading at $10.24, up 58% from $6.46 a year ago. Shares trade on a price-to-earnings (P/E) ratio of ~15 with a dividend yield of 4.88%. The Group owns brands Supercheap Auto, BCF, Rebel, and Macpac. Super Retail Group operates 670 retail stores across Australia and New Zealand with annualised turnover of more than $2.5 billion.
Accent Group
Accent Group shares are trading at $1.85, up 59% from $1.16 last January. The shares trade on a P/E ratio of ~19 and dividend yield of 4.47%. Accent Group retails performance and lifestyle footwear across more than 470 stores in Australia and New Zealand. Brands include The Athlete's Foot, Hype DC, Sketchers, CAT, Saucony, Vans, Dr Martens, and Timberland.
Lovisa
Lovisa shares are trading at $12, up 110% from $5.71 a year ago. The shares trade on a P/E ratio of ~35 with a dividend yield of 2.75%. Lovisa is a fast fashion jewellery retailer operating from a network of more than 420 stores across Australia, the United States, Europe, and South Africa.
Michael Hill
Michael Hill shares are trading at 70 cents, up 13% from 62 cents last January. The shares trade on a P/E ratio of ~16 and dividend yield of 4.03%. Michael Hill operates a retail jewellery chain of approximately 300 'Michael Hill' and 'Emma & Roe' stores across Australia, New Zealand, Canada, and the United States.
Myer
Myer shares are trading at 48 cents, up 17% from 41 cents a year ago. The shares trade on a P/E ratio of ~16 with a dividend yield of 10.31%. Myer operates 61 department stores across Australia.
Adairs
Adairs shares are trading at $2.25 cents, up 28% from $1.75 cents last January. The shares trade on a P/E ratio of ~13 and dividend yield of 6.44%. Adairs is a home furnishings retailer with more than 160 stores across Australia and New Zealand.
Premier Investments
Premier Investments shares are trading at $19.00, up 35% from $14.17 a year ago. The shares trade on a P/E ratio of ~28 with a dividend yield of 3.68%. Premier Investments wholly owns the Just Group and also holds a 28.96% stake in Breville Group Limited (ASX: BRG). The Just Group's brands include Smiggle, Peter Alexander, Just Jeans, Jay Jays, Portmans, Dotti, and Jacqui E.
