February reporting season was a mixed bag for ASX retail shares despite strong half-year results across the board.
Morgans has run the ruler over a number of ASX retail shares, citing the rising Australian dollar, ongoing vaccine roll out and strong household savings as factors that will support retailers.
Here are four ASX retail shares that received an "Add" rating by Morgans on 3 March.
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1. Adairs Ltd (ASX: ADH)
The Adairs share price topped out and hit a record all-time high on the day its half-year results were released. The company delivered outstanding growth with a 34.8% increase in sales to $243.0 million while statutory net profit after tax surged 233.4% to $43.9 million.
Morgans believes that, while retail sales will moderate in a post-COVID world, Adairs' earnings will normalise at a materially higher level. Earlier this week, the broker retained a $4.50 price target for Adairs, which represents a 20% upside from today's prices.
2. Baby Bunting Group Ltd (ASX: BBN)
The Baby Bunting share price took a 6% dive on the announcement of the company's half-year results. Baby Bunting announced a 16.6% increase in sales to $217.3 million and pro forma net profit after tax of $10.8 million, a 43.5% increase on the prior corresponding period.
Morgans is bullish on the company's expansion plan to establish a multi-channel retail proposition in New Zealand, with its first store anticipated to open in FY22.
On 3 March, the broker retained its $6.39 share price target for Baby Bunting. This represents an almost 24% premium to today's Baby Bunting share price
3. Breville Group Ltd (ASX: BRG)
The Breville share price also experienced a similar effect as Adairs on the day its own half-year results were announced on 16 February. Breville shares briefly hit an all-time record high of $32.85 following the company's update.
Breville's revenues increased 28.8% to $711.0 million for the half while net profit after tax grew 29.25% to $64.2 million. The company noted that assuming no significant change in economic conditions in its major trading markets, it expects FY21 EBIT to be approximately $136 million. This represents an increase of 34.8% on FY20 EBIT guidance and is also higher than the FY21 guidance of $128 million to $132 million provided at its November AGM.
Morgans retained a $33.90 share price target, around 27% higher than the current Breville share price.
4. Lovisa Holdings Ltd (ASX: LOV)
The Lovisa share price surged 19% on the back of the company's half-year results. But while the other ASX retail shares mentioned here delivered double-digit, and in some cases triple-digit, growth across the board, Lovisa was significantly impacted by worldwide store lockdowns.
As a result, Lovisa's revenue took a 9.8% hit while net profit after tax slumped 22.6%. Despite a weak performance at face value, Morgans is bullish on the company's reopening leverage and believes it could see an uplift in growth in the short term.
The company's results noted that the first seven weeks of the second half has seen a strong performance from the Southern Hemisphere markets and challenging trading conditions in the Northern Hemisphere, with comparable store sales up 12% overall.
Morgans retained a target price of $17.95, a 29% premium to the current Lovisa share price.
