Investors in ASX 200 retail shares have been bracing themselves over the past 12 months as rising inflation and interest rates force Australian consumers to tighten their belts.
These macroeconomics aren't good for retail shares, especially those in the discretionary sector.
In 2022, we saw a 23% decline in the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) as investors sold out of retail shares because they expected falling sales, revenues, and dividends.
Annual inflation in Australia peaked at 8.4% over the 12 months to December. It has since come down a bit to 6.8% over the 12 months to February, according to the latest figures from the Bureau of Statistics.
This was one of the reasons the Reserve Bank decided to pause interest rate hikes this month.
This has brought new confidence to the consumer discretionary sector, with the index up 12.3% in the year to date.
It seems ASX 200 retail shares are back on investors' radars in 2023, despite inflation remaining very high historically.
So, which ASX 200 retail shares are performing best in this challenging environment?
Using data from S & P Global Market Intelligence, we can reveal the top share for price growth over the past 12 months.
Livin' la Vida Lovisa
The ASX 200 retail share with the highest share price growth over the past 12 months is Lovisa Holdings Ltd (ASX: LOV).
Shares in the fashion jewellery and accessories retailer have increased by 46% over the past year.
That's pretty gob-smacking growth during a period of such high inflation.
Ranking behind Lovisa — by a long way — are these four other ASX 200 retail shares rounding out the top five performers over the past 12 months.
- The Super Retail Group Ltd (ASX: SUL) share price is up 25.1%
- The Wesfarmers Ltd (ASX: WES) share price is up 8.6%
- The Eagers Automotive Ltd (ASX: APE) share price is up 4.1%
- The Bapcor Ltd (ASX: BAP) share price is up 4.1%
Why is the Lovisa share price rising so fast?
The company's global expansion plans look very promising, and its vertically-integrated business model may be protecting it from inflation somewhat. You see, Lovisa designs and manufactures all of its products in-house, which means it has greater relative control over its costs.
As my Fool colleague James reported last week, Morgans has Lovisa shares on its best ideas list.
The broker has an add rating on Lovisa and a $28.50 price target on the shares.
In a note, the broker said:
LOV is a global fast fashion jewellery brand with more than 700 stores in more than 30 countries. We think it may prove to be one of the biggest success stories in Australian retail.
With ambitious and well-incentivised new leadership in place, we think now is the time LOV steps up to become a global force. LOV has accelerated its organic rollout in the US and entered into a number of new markets, including Hong Kong, Mexico, Italy, Columbia and Peru.
Investment will be needed to expand LOV's network in the US and Europe and to take it into new markets, but the returns could be stellar.
As another colleague Tristan points out, Commsec values the Lovisa share price at just 20 times FY25 estimated earnings, with a possible FY25 grossed-up dividend yield of 5.6%.
The Lovisa share price is up 0.3% today to $25.68.
