ASX retail shares have done remarkably well in the midst of a cost of living crisis in Australia.
The S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) rose 19.29% in FY24 compared to a 7.83% lift for the S&P/ASX 200 Index (ASX: XJO) (or 12.1% with dividends included).
Check out the reasons why: Why did ASX retail shares rise 19% in FY24 amid a cost of living crisis?
Since the new financial year began, ASX retail shares have continued their run.
The consumer discretionary index is up 5.48% since 1 July versus a 2.08% lift for the ASX 200.
In this climate, top broker Goldman Sachs has various buy and sell recommendations across retail stocks.
Let's check out two of their recommendations and the reasons behind them now.
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Which ASX retail share is a buy?
Goldman slapped a buy rating on Domino's Pizza Enterprises Ltd (ASX: DMP) shares last week.
The ASX retail share is trading at $33.07 on Friday, down 1.72%. It's down 44.18% in the year to date.
The broker has a 12-month share price target of $42.20 on Domino's Pizza.
Goldman analysts Lisa Deng and James Leigh said:
For context, we have been relatively cautious on DMP's growth strategy since we assumed coverage in July 2022 on a combination of Japan store over-expansion and digital under-investment concerns.
That said, in our Europe Investor Day preview we noted a critical catalyst that would make us more positive as "re-prioritizing store unit economics over store growth".
The broker liked the news from Domino's last week that it intends to close approximately 80 underperforming stores in Japan and 20 to 30 stores in France.
This represents about 8% of the Japan network and 5% of the France network.
Deng and Leigh said the "focus on restoring store unit economics is a positive strategic pivot"
The analysts think digital capabilities are essential to make fast food operators like Domino's competitive. They're encouraged by the success of recent investments, particularly the relaunch of the loyalty program.
The broker also sees the ASX retail share's current price as attractive.
In last week's note, Deng and Leigh said:
Based on last close of A$33.12/sh, the stock is now trading at 20x FY25eP/E and 17x FY26e P/E, on the back of FY24-26e EPS CAGR of 21% EPS, implying ~1.0x PEG.
Why is this one a sell?
Goldman has had a sell rating on JB Hi-Fi Ltd (ASX: JBH) since May. But the ASX retail share has just kept on rising, lifting another 16.2% since Goldman downgraded the stock.
JB Hi-Fi shares are $67.24 apiece on Friday. They're up 0.9% for the day and up 23.57% in the year to date.
Goldman has a 12-month price target of $50 on JB Hi-Fi shares, implying a potential 25% drop from here.
In their May note, Deng and Leigh said:
… we cut FY24-26e EBIT by 3-4% and EPS by 3-5% given softer growth in the Electronics category as well as rising competition, particularly for JBH AU, most noticeably from Officeworks.
In light of the anticipated delay in interest rate cuts or even another rate hike this year, Deng and Leigh reckon ASX retail shares in the consumer staple space will do better than discretionary shares.
