The ASX share market has been through a lot of volatility in 2022. Inflation and higher interest rates may have been the cause of the pain.
But, while some ASX shares have bounced back – like Pilbara Minerals Ltd (ASX: PLS) – others are still languishing at much lower prices.
It's perhaps unsurprising that the ASX retail share segment of the market is still hurting. While for some businesses it's only the valuation that has been hit, there are some companies that could face more difficult trading circumstances.
But, sometimes the market can become too pessimistic and this can open up opportunities. So, let's look at two of those that have been hit heavily.
Best & Less Group Holdings Ltd (ASX: BST)
Best & Less describes itself as a leading value apparel specialty retailer with 244 stores and a fast-growing online platform. Its aim is to be the number one choice for mums and families buying baby and kids' value apparel in Australia and New Zealand through Best & Less in Australia and Postie in New Zealand.
The Best & Less share price has dropped by around 40% since the beginning of the year.
FY22 did see some difficulties as lockdowns caused many of its stores to close. Even so, revenue only fell by 6.2% and the net profit after tax (NPAT) declined 12.6%. Compared to FY20, NPAT was 155% higher.
In FY22, the company's online sales increased by another 15.6%, making up 11.3% of total sales.
The ASX share is experiencing cost inflation, though it has increased prices and it's taking other measures to keep costs down.
It paid out around 80% of its net profit as a dividend, at 23 cents per share. At the current Best & Less share price that represents a grossed-up dividend yield of 13.6%.
In the first eight weeks of FY23, total sales were up 38% as it cycles against locked-down periods. Management thinks that more customers could be attracted to its value offer. It's also planning to grow its store footprint, with 11 new stores planned (and three stores to be upsized).
I think the Best & Less share price is a longer-term buy at the current depressed level, with a large dividend that could offer strong returns during this uncertain period. It's only priced at 8x FY22's earnings.
Dusk Group Ltd (ASX: DSK)
Dusk is a retailer of home fragrance products that are sold exclusively in its stores and website. It sells things like candles, ultrasonic diffusers, reed diffusers and essential oils and fragrance-related homewares.
The Dusk share price has dropped 37.5% since the start of 2022. Ouch.
The retail ASX share reported a bigger hit to its profit. FY22 sales were down 6.9% to $138.4 million and pro forma earnings before interest and tax (EBIT) dropped 31.1% to $26.5 million. During the year it opened 10 new stores.
It also paid a full-year dividend of 20 cents per share. At the current Dusk share price that translates into a grossed-up dividend yield of 14.3%.
In terms of a trading update, the company said that in the first eight weeks of FY23, its total sales were up 33.2%, with trading "notably stronger" in August compared to July. The gross margin is trending "in line" and the inventory is currently "well balanced" to meet demand.
Dusk has a market capitalisation of $124 million according to the ASX. But, the ASX share has net cash of $21.3 million at the end of FY22, with no debt.
It's planning to open five new stores in Australia before Christmas, with a three-store trial entry into New Zealand.
The ASX retail share is priced at under 7x FY22's earnings.
I'm not sure how candle sales will go over the next year or two, but it now seems cheap enough that the balance sheet, share price and dividend make up for uncertainty.
