Plenty of ASX retail shares are doing incredibly well. Are some of them buys right now?
When you look at the performance of the share prices since the 23 March 2020 low, it’s staggering how hard some of these ASX shares have bounced.
The Adairs Ltd (ASX: ADH) share price is up 504%.
The Kogan.com Ltd (ASX: KGN) share price is up 402%.
Plus-size women’s fashion retail City Chic Collective Ltd (ASX: CCX) has seen its share price go up 326%.
The Kathmandu Holdings Ltd (ASX: KMD) share price is up 127%.
The JB Hi-Fi Limited (ASX: JBH) share price is up 88%.
Even the Wesfarmers Ltd (ASX: WES) share price is up 52%.
In hindsight it was a great buying opportunity to buy many of these shares at much cheaper prices.
I don’t think you can say that investors are purely bidding up the smaller retailers on speculation. They are delivering fantastic growth numbers.
Retail growth examples
In today’s FY20 results announcement, Adairs said that in FY20 its online sales grew by 61.4% during the year and underlying earnings before interest and tax (EBIT) grew by 39.7%. Statutory net profit was up 195%.
In the first five weeks of FY21, online sales were up 103.2%, Mocka sales were up 46.8% and like for like store sales were up 15.8%.
Kogan.com also delivered an update to investors today for July 2020. It showed that gross sales were up 110% year on year, gross profit was up 160% and it achieved more than $10 million of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
When you look at today’s ASX retail share prices and the growth they’re delivering, it doesn’t actually seem too bad.
But there’s a big question:
Will the sales growth continue?
I think there are two main elements that are supporting the growth of some of these businesses.
The first is that they have a strong online presence. Indeed, some of them like Kogan.com and Temple & Webster Group Ltd (ASX: TPW) are set up as online-only retailers.
Businesses with an effective, easy-to-use website like Adairs or City Chic can simply shift most of their sales from stores to online fulfillment. The lockdowns and restrictions didn’t affect them too much.
The shopping centre shares like Scentre Group (ASX: SCG) are still substantially down from their pre-COVID-19 levels. If most of these stunning retail sales were being done in-store then Scentre and others would have recovered further.
The other thing that seems to be boosting them indirectly is the government stimulus. I don’t think it’s a negative at all – the country needed it. I think the government payments are the main reason why the economy is in better shape than it could have been, aside from controlling the spread of COVID-19 effectively.
Jobkeeper is now scheduled to last until March 2020, at a lower rate than the first six months. Once the government help turns off it will be interesting to see if the economy is back to normal operations or not.
Government assistance can’t go on forever like this. If businesses are being boosted by temporary measures then I don’t think that we can project a permanent uplift of sales like we’re seeing today.
Which ASX retail shares I’d buy today
Of the ones I’ve mentioned so far, I think City Chic has the best chance of continuing to perform. I really like the direction the business has gone on over the past two and a half years with its international growth and improving margins. It looks pretty reasonably valued to me – at the current City Chic share price it’s trading at 23x FY22’s estimated earnings.
City Chic is rapidly expanding overseas with both organic sales growth and acquisitions of troubled competitors. The company could be one to watch, particularly as there’s not much strong competition in the plus-size fashion space.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Kogan.com ltd, Scentre Group, and 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.