The S&P/ASX 200 Index (ASX: XJO) retail shares have suffered a sell-off during 2022. But, could FY23 be the year of opportunistic bargain-hunting?
Let's have a look at some of the declines we've seen so far this calendar year.
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Performance so far this year
The Wesfarmers Ltd (ASX: WES) share price has fallen by more than 25% this year, though it's up 6.4% since the end of June 2022.
The JB Hi-Fi Limited (ASX: JBH) share price is down 17.6% in 2022, but it's 4.6% higher in FY23.
The Harvey Norman Holdings Limited (ASX: HVN) share price is down 17.5% for the year yet it has risen 12% from the end of June 2022.
The Woolworths Group Ltd (ASX: WOW) share price has fallen 13% in 2022 and is down 6.3% in FY23.
The Premier Investments Ltd (ASX: PMV) share price has fallen 21% in 2021 but it's up 25% since 30 June 2022.
How does the ASX 200 Index compare to all of these numbers? In 2022 to date, it's down by 10.9%. Since 30 June 2022, it's up by 3%. So, largely, ASX 200 retail shares have performed worse in 2022 but have done better over the past three and a bit months.
Should investors be looking at ASX 200 retail shares?
That's the big question.
There are plenty of other retailers outside the ASX 200 that have also suffered sizeable falls like Nick Scali Limited (ASX: NCK), Adairs Ltd (ASX: ADH), Universal Store Holdings Ltd (ASX: UNI), Best & Less Group Holdings Ltd (ASX: BST), and Shaver Shop Group Ltd (ASX: SSG).
Yet every retailer is different. The revenue and net profit after tax (NPAT) growth performance of Wesfarmers is likely to be quite different to JB Hi-Fi's.
I also think it's likely that FY23 and perhaps FY24 won't show the strength that FY20 and FY21 did. Households may not have as much money to spend in the retail sector because of the impacts of inflation and rising interest rates.
However, some of these retailers have seen their share prices drop 30%, 50%, or even more.
Businesses are naturally going to try to find ways to protect and grow their profits. Same-store sales may decline, but retailers can open new stores which might lessen the overall blow. They can also sell more items online. Retailers can expand their ranges and look to grow internationally. They may be able to find ways of being more efficient with costs.
It's possible that retail sales may not fall as much as some investors are expecting.
Another thing that could work in retailers' favour this year is that many of them could report strong growth in the first half of FY23. Don't forget, a year ago, a substantial portion of the Australian population was under lockdowns. This also meant that many retail stores faced restrictions.
Currently, we're seeing good trading updates from businesses for the first few weeks of FY23. Examples include Wesfarmers, Premier Investments, and Shaver Shop.
So, in summary, I think that generally, ASX 200 retail shares could be long-term opportunities. However, there could still be plenty of volatility and FY23 may well show sizeable profit declines for a number of them. But I think we may have already seen the worst of the share price pain.
