The ASX retail share sector has seen much volatility in recent times. With how the outlook is shaping for FY23, can investors be confident about retailers at the current prices?
Let's look at some of the carnage seen since the beginning of 2022.
The Wesfarmers Ltd (ASX: WES) share price has dropped around 25%.
The JB Hi-Fi Limited (ASX: JBH) share price is down 19%.
The Temple & Webster Group Ltd (ASX: TPW) share price is down 71%.
The Adairs Ltd (ASX: ADH) share price is down almost 50%.
The Nick Scali Limited (ASX: NCK) share price is down 44%.
The Harvey Norman Holdings Limited (ASX: HVN) share price is down 23%.
The Kogan.com Ltd (ASX: KGN) share price is down 68%.
There's a lot of pain out there.
What's the latest?
In terms of the latest updates, each business is seeing different trading conditions. Some of them are still seeing growth.
In the FY22 third quarter, Kogan's total gross sales went down 3.8% to $262.1 million.
In the three months to March 2022, JB Hi-Fi said that JB Hi-Fi Australia sales grew by 11.9% while The Good Guys' sales rose by 5.5%.
Meantime, Temple & Webster said that revenue rose by 23% for the period of 1 January 2022 to 30 April 2022 and was up 116% compared to 2020.
So, some businesses were still reporting growth earlier in 2022. However, the concern is that things may be looking worse with changing economic conditions.
Why the negativity on ASX retail shares?
There are two things that retailers are facing, which could hit their customers.
One difficulty is inflation. Households only have so much money to spend in their budgets. The essentials are getting much more expensive – mortgage interest, rent, food, petrol, energy, and so on.
If households have less discretionary money to spend, then this could impact how much money is spent, collectively, at these retailers.
Brokers Ord Minnett and UBS both have recently noted the worsening outlook for retailers. Both have cut profit projections for retailers like JB Hi-Fi because of the higher costs that households are facing. This, in turn, may see Aussies may tighten their spending.
Broker ratings
However, every business's valuation and prospects are different. So, let's look at some of the ratings and price targets. A price target is essentially a guess of where brokers think a share price could be in 12 months.
With share prices down so much in 2022, could these lower prices be attractive discounts?
UBS is 'neutral' on JB Hi-Fi, with a price target of $38.
Temple & Webster also gets a 'neutral' rating from UBS, but the price target of $4.25 offers plenty of upside from its current share price of $3.07.
However, UBS still rates Adairs as a buy, but has reduced its price target to $3.70. This still implies a possible rise of more than 70%, suggesting it's cheap because of the low price/earnings (P/E) ratio.
One of the latest ratings on Wesfarmers comes from Macquarie. It has an 'underperform' rating, with a price target of just $43.30. The current Wesfarmers share price is $44.84.
