What’s the outlook for ASX 300 retail shares in June?

Here’s what might weigh on ASX 300 retailers in the future.

| More on:
a woman with lots of shopping bags looks upwards towards the sky as if she is pondering something.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX 300 retailers could soon be impacted by shifting consumer spending amid higher inventory levels, Morgan Stanley equity strategists have reportedly predicted
  • The forecast comes after similar happenings saw the share price of US retail monolith Target sporting a 25% dint last week
  • And while Australia's higher savings rate could help ward off some of the pressure, it might not be enough be save ASX 300 retailers from the impact of higher inflation

The future could be tough for S&P/ASX 300 Index (ASX: XKO) retail shares. Morgan Stanley has reportedly warned Australia’s retail sector could face similar headwinds to those recently impacting US retail giants.

That could be dire for ASX 300 retail shares such as Nick Scali Limited (ASX: NCK), JB Hi-Fi Limited (ASX: JBH), City Chic Collective Ltd (ASX: CCX), and Eagers Automotive Ltd (ASX: APE).

Let’s take a closer look at why the financial services provider is reportedly wary of the retail sector.

Are ASX 300 retail shares about to face headwinds?

ASX 300 retail shares beware. Morgan Stanley warns Australia’s retail sector may face the same consumer trends that recently dinted some US retail monoliths.

Target Corporation (NYSE: TGT)’s stock tumbled nearly 25% on the back of a trading update last week. Within the release, the company announced fewer sales had forced it to discount merchandise to clear inventory.

That, and a similar story over at Walmart Inc (NYSE: WMT), helped spark a sell-off among US-listed retail shares.

And Morgan Stanley equity strategists believe such happenings could soon make it to Aussie shores, according to The Australian.

“US retail experience around wallet shift, cost pressures, and inventory overbuild raise questions for our market,” Morgan Stanley equity strategists, led by Chris Nicol, were quoted by the publication as saying.

They said US retailers were caught off guard as consumers moved away from durables and towards consumables due to rising inflation. That came alongside higher fuel prices, leading to greater costs for retailers.

“These effects are also building in Australia and are arguably not reflected in consensus sales and earnings estimates that in aggregate have only seen positive revision momentum during Covid boosts and reopening benefits.”

One red flag for Morgan Stanley is ASX 300 retail shares building up inventories due to supply chain challenges. This could backfire and lead to discounting.

City Chic was among the retailers deliberately bolstering its inventory last half. It was doing so in an attempt to ward off stock shortages during key sales periods.

Australia’s 13.6% savings rate will likely protect the sector for now. But Morgan Stanley is reportedly wary it might not translate to greater spending.

[M]uch of this savings drawdown is centred in recovering services categories, as well as absorbing headwinds from rising costs of living and higher interest rates.

Should consumers hedge future impact with caution in other categories this would also inhibit the level and pace of the ultimate drawdown in savings – with discretionary goods most vulnerable to spending adjustment.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Target. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retail Shares

A young woman slumped in her chair while looking at her laptop and the tanking NDQ ETF share price on the ASX
Retail Shares

Down almost 30% in FY22: What’s worrying investors about Wesfarmers shares?

Why did the Bunnings operator fall so hard in FY22?

Read more »

A girl wearing yellow headphones pulls a grimace, that was not a good result.
Retail Shares

Down 16% in June: What put the JB Hi-Fi share price on sale?

Investors knocked almost a fifth off the price of this ASX retail share.

Read more »

A woman wearing a beauty mask on her face shrugs and looks unhappy.
Retail Shares

Why the Adore Beauty share price fell another 20% in June

The sell-off turned ugly for this e-commerce business last month.

Read more »

Woman checking out new laptops.
Retail Shares

How did ASX 200 retail shares perform in June?

Let's examine how the month just past treated ASX 200 retail shares.

Read more »

Worried ASX share investor looking at laptop screen
Retail Shares

Why did the Wesfarmers share price tumble 11% in June?

We check what was weighing on the conglomerate's stock last month.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Retail Shares

Why did the Kogan share price go backwards in FY22?

The e-commerce business sank 75% last financial year.

Read more »

A child pulls a very sad crying face sitting in the child seat of a supermarket trolley in a supermarket aisle lined with grocery items.
Retail Shares

What’s the outlook for Wesfarmers shares in July?

As the cost of goods and services increases, consumers supposedly have less disposable income to spend on discretionary items.

Read more »

Three happy shoppers.
Retail Shares

Embattled ASX 200 retail shares primed for a comeback: experts

Brokers are tipping a brighter future for some retail shares...

Read more »