Despite the damp outlook on the retail sector in the short and long-term, there are 2 ASX retail shares on my radar in 2020. I think there is still growth to be found in the sector, even with rental overheads, a drop in consumer confidence and the surge in online retail sapping market share.
Here are 2 ASX retail shares that are on my radar for 2020 and beyond.
Reject Shop Ltd (ASX: TRS)
The first ASX retail share I am eyeing is the Reject Shop. With domestic economic conditions deteriorating in the near term due to the coronavirus pandemic, there could be a drastic surge in demand for budget retailers like the Reject Shop. The Reject Shop is strongly positioned in Australia’s ‘dollar shop’ industry, making the company well-poised for growth in 2020 and beyond.
Recent research from noted broker Morgan Stanley has cited the profitability of the budget retail niche in other global markets. According to analysts, the Reject Shop could see exponential growth in sales and revenue under new management and a simplified strategy.
The Reject Shop share price has bolted more than 160% from its low in late-March, hitting a new 52-week high in July. In addition, the Reject Shop was added to the All Ordinaries Index (ASX: XAO) in the June rebalance, improving the company’s investment credentials.
Super Retail Group Ltd (ASX: SUL)
The other ASX retail share on my radar is Super Retail which owns prominent national brands including Supercheap Auto, BCF and Rebel Sport. The company made headlines recently after upgrading its earnings for FY2020, which saw the Super Retail share price surge.
In a market update released in late July, Super Retail informed investors that the company had seen a surge in trading momentum for June, with monthly like-for-like sales of 27.7% compared to the prior corresponding period. The positive trading momentum follows a 26.5% increase in like-for-like sales in May, following a 26.2% decline in monthly sales in April.
Super Retail is on my radar because I believe the company is set to benefit from a range of changing consumer behaviours. During the coronavirus lockdowns, consumers have shown fresh interest in home fitness equipment. As elite and community sports resume, the group’s Rebel Sport outlets could see renewed demand.
In addition, with overseas holidays and interstate-travel restricted, local recreational activities like boating, camping and fishing pursuits could see renewed interest from holidaymakers. The shift to online and digital commerce could also benefit Super Retail as the company looks to improve its click-and-collect services. Super Retail recently completed a $203 million equity raising to fuel its strategy and growth initiatives. The fresh capital is intended to finance the company’s omni-channel business strategy.
Should you invest?
Given the volatile and distressed state of the retail sector, it may pay to hold off buying either the Reject Shop or Super Retail at today’s share price. I think a more sensible strategy would be to wait for both companies to report their full-year results before making your investment decision. The Reject Shop is set to report its annual results on 20 August, and Super Retail is scheduled for 13 August.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group 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.
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