These ASX retail shares are lockdown winners

Australian retail spending rebounded in May, rising a record 16.3%. We take a look at how ASX retail shares are benefitting.

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Australian retail spending rebounded in May, rising a record 16.3% following a 17.8% fall in April. Sales had previously jumped 8.5% in March due to stockpiling and panic buying. The May rise was the largest in the 38 years of collected data. 

Initial figures from the Australian Bureau of Statistics indicates turnover in household goods was 30% higher in May 2020 than May 2019. Household goods retailing has been one of the more resilient sectors during the coronavirus pandemic, falling a mere 0.1% in April. ASX retailers operating in this space have benefitted from consumers spending increased time at home.

Let's take a look at how these retailers and the overall ASX retail shares are performing. 

Adairs Ltd (ASX: ADH)

The Adairs share price has recovered strongly and is up 362% from its March low. Adairs is an omnichannel home furnishings retailer operating 160 stores in Australia and New Zealand as well as online. The company sells bedroom furniture, manchester, homewares and children's furnishings. 

Last week Adairs reported that despite the closure of stores during the lockdown period, store sales have increased over the year to date, while online sales have boomed. Physical stores reported 3.5% sales growth for the year to date, despite store closures during lockdown across Australia and New Zealand. Online sales are up by 64% year to date, and 92.6% in 2H FY20 to date (being the 24 weeks to 14 June). 

This brings total like-for-like sales growth to 15.7% for the financial year to date and 27.4% for the second half. Adairs is definitely benefitting from people spending more time at home. Consumers are choosing to upgrade their home furnishings and purchasing things like bed linen, new pillows and decorations. 

Adairs purchased online home and living products retailer Mocka last year. The acquisition created a larger, more diversified business with increased exposure to the online channel. Pleasingly, Mocka also recorded 52.1% sales growth in the second half to date, with 100% of sales online. 

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is Australia's largest e-commerce company in the furniture and homewares market. The retailer has benefited both from the move towards online shopping and consumer efforts to upgrade living spaces. 

The company has continued to trade strongly in the second half with revenue growing by 90% compared to the prior corresponding period. The result was driven by strong growth in April and May as customers turned to online to fulfil furniture and homewares needs. This trend has continued in June with revenue tracking at +100% on the prior corresponding period. 

In FY20 (to 31 May) Temple & Webster has seen year to date revenue increase 68% to $151.7 million. EBITDA is up 668% to $7.1 million, while active customer numbers have increased 68% to 440,257. The company is cash-flow positive and has a capital-light business model with a debt-free balance sheet. 

Temple & Webster is well placed to take advantage of the structural shift to online in the furniture and homewares market. CEO and Co-Founder Mark Coulter said: "We remain bullish about the longer-term shift from offline to online driven by changing consumer preferences and demographics. Customers are experiencing the benefits of our channel, including range, convenience, and value." 

Nick Scali Limited (ASX: NCK)

The Nick Scali share price is up nearly 130% from its March low, having surged strongly last week on the back of its latest sales figures. Prior to the pandemic, the furniture retailer sold predominantly through physical stores, importing some 5,000 containers of furniture per year. 

As a result of the pandemic, Nick Scali has enhanced its digital offering, allowing customers to purchase its entire range of products online. The retailer closed showrooms on 30 March 2020 and began reopening in April, with all stores open by the end of the month. Since reopening, all showrooms have traded strongly with positive sales order growth. 

Customer activity rebounded significantly in May and the first half of June. Sales orders over May and June are expected to be up 54% on the prior corresponding period. This surge has been driven by the easing of restrictions and consumer spending toward furnishings and homewares. 

Nick Scali has benefitted from people spending more time at home. As a result, consumers are choosing to upgrade their domestic environments with new furniture and accessories. Given the current increase in sales orders, Nick Scali expects sales growth of 30% in Q1 FY21 which will underwrite profit growth for 1H FY21. 

Nick Scali has forecast strong profit growth in the second half. It predicts net profit after tax (NPAT) to be up 15% to 20% on 2H FY19. Full-year revenue is expected to be in the range of $260 million to $263 million. The retailer is expecting full-year underlying NPAT of $39 million to $40 million. 

Kogan.com Ltd (ASX: KGN)

Kogan has been one of the strongest retail performers over the pandemic. The Kogan share price has gone from strength to strength, increasing 261% from its March low and surpassing previous highs. In April and May Kogan's gross sales increased 103% year on year. This drove a 132.9% increase in gross profit across the period. 

Kogan added 126,00 active customers in May, growing active customer numbers to 2,074,000 at the end of the month. Adjusted EBITDA grew by 219.3% across April and May, with financial year to date adjusted EBITDA up by more than 50%. The company had cash of $58.6 million at the end of May with its debt facility drawn to $26 million. 

Earlier this month Kogan launched a $100 million capital raising at an offer price of $11.45 per share. Funds will be used to increase financial flexibility, giving the ability to act quickly on accretive opportunities, expand the customer base, and enhance the operating model. Of course, Kogan is not just an online retailer – it also offers services including insurance, internet, mobile, and energy. 

Alongside the above ASX retail shares, Kogan has benefitted from a spike in sales due to lockdowns while many bricks and mortar stores were forced to close. The long-term shift to digital which has been accelerated by current events is also in the retailer's favour. 

Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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.

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