Top broker Goldman Sachs says its key buy calls among ASX retail shares are now skewed towards consumer staple shares over discretionary shares.
In a new note to clients this week, Goldman analysts Lisa Deng and James Leigh said they currently "see better value in staples where valuation and earnings expectations are less demanding".
Deng and Leigh said consumers were "clearly increasingly value-focused" amid anticipated delays in interest rate cuts or even another hike this year.
What's happening in retail these days?
The latest retail figures from the Australian Bureau of Statistics (ABS) revealed the "weakest growth on record" outside the pandemic and the introduction of the GST.
Retail turnover has increased by just 0.8% over the 12 months to 31 March, despite massive population growth due to high immigration.
Turnover fell by a seasonally adjusted 0.4% in the month of March.
This followed gains of 1% in January and 0.2% in February.
ABS head of retail statistics Ben Dorber said:
Consumers pulled back on retail spending in March as cost of living pressures remained high.
Outside of the pandemic period and introduction of the GST, this is the weakest growth on record when comparing turnover to the same time in the previous year.
Turnover was down in every sector in March, except food. The largest declines occurred in clothing, footwear and personal accessory retailing (down 4.3%) and department stores (down 1.6%).
Goldman's take on consumer spending
Deng and Leigh said Goldman Sachs had changed its rate cut projection from August to November and "this is expected to impact discretionary spending" from here.
They noted recent ABS data showing declining discretionary spending, including a 1.9% annual drop in household goods sales, a 3.5% dip in electronic goods and a 3.7% fall in furniture sales.
They said:
Recent 3Q24 results, our deep-dive channel checks and the latest ABS retail data suggest that Australian consumers are increasingly price conscious and selective on spending.
Conversely for Staples … we continue to believe that market concern on ongoing regulatory inquiries (most important ACCC Inquiry interim report by August 31) is overdone.
Our latest conversations with key FMCG companies also note that volumes remain positive and while pricing is unlikely to see significant hikes from here, continued portfolio innovation to drive mix remains a growth lever.
The analysts mentioned ABS data showing a 3.8% lift in supermarket sales in the March quarter.
6 ASX retail shares to buy
In light of all this and following third-quarter updates from ASX companies, the analysts have updated their recommendations for ASX retail shares.
In order of preference, here are the ASX retail shares that Goldman says are a buy today.
Super Retail Group Ltd (ASX: SUL)
The Super Retail share price is $13.33, down 1.15% currently and 16.1% lower in the year to date.
Goldman has a 12-month share price target of $17.80 on the owner of Rebel and Supercheap Auto.
Woolworths Group Ltd (ASX: WOW)
The Woolworths share price is $31.80, down 0.16% now and 15.2% lower in the year to date.
Goldman has a 12-month share price target of $39.40 on the ASX retail supermarket share.
Endeavour Group Ltd (ASX: EDV)
The Endeavour share price is $5.14, down 1.34% currently and down 1.9% in the year to date.
Goldman has a 12-month share price target of $6.30 on the owner of BWS and Dan Murphys.
Treasury Wine Estates Ltd (ASX: TWE)
The Treasury Wine share price is $11.57, up 0.35% now and 8.2% higher in the year to date.
Goldman has a 12-month share price target of $13 on the ASX retail wine share.
Webjet Ltd (ASX: WEB)
The Webjet share price is $8.47, down 0.76% now but up 14.4% in the year to date.
Goldman has a 12-month share price target of $9.20 on the ASX retail travel share.
Breville Group Ltd (ASX: BRG)
The Breville share price is $25.48, down 2.75% currently and down 5.5% in the year to date.
Goldman has a 12-month share price target of $28 on the ASX retail share.
