With ASX earnings season now coming to a close, it's a good time to look back on the reporting period that was and glean some key takeaways. We saw many earnings reports that were well-received by investors. But those from ASX retail shares were arguably more of a mixed bag.
Sure, we had some winners. For example, investors sent the JB Hi-Fi Ltd (ASX: JBH) share price to a new record high following the electrical and appliances retailer's earnings report that was dropped on 12 August.
Super Retail Group Ltd (ASX: SUL) also dazzled investors with its earnings on 22 August. The market sent the owner of Super Cheap Auto and BCF to a new all-time high of its own on seeing this company's numbers.
But other ASX retail shares haven't been so lucky.
Just last week, Harvey Norman Holdings Ltd (ASX: HVN) shares took a big tumble after the electronics and furniture retailer reported its latest earnings. It's likely that Harvey Norman's 30.2% drop in net profits, as well as its 12% dividend cut, had something to do with that.
A few days earlier, investors also punished jewellery retail share Lovisa Holdings Ltd (ASX: LOV) over its earnings report.
What's strange about these ASX retail shares is that even amongst the companies whose earnings were relatively well-received, the underlying fundamentals didn't look all that good. To illustrate, JB Hi-Fi reported an 11% fall in earnings. Not to mention a 16.4% drop in net profits.
Likewise, Super Retail also revealed an 11% net profits decline. Special dividends masked a 15.9% cut to its ordinary final dividend as well.
Pulling all of this together, we can conclude that this earnings season was an uphill battle for ASX retail shares.
Why were the cards stacked against ASX retail shares?
ASX retail shares are arguably more sensitive to the health of the overall economy than those in many other sectors. Most retail stocks are technically defined as 'consumer discretionary' stocks, which tells you almost everything you need to know.
Retailers sell goods that consumers tend to only buy (or at least buy more of) when they feel like they have disposable income. If times are tough, plans to buy new clothes, TVs, or camping trailers are usually put on the chopping block rather than food, household essentials, or electricity (consumer staples).
As such, ASX consumer discretionary retail shares tend to thrive when the economy is booming. But conversely, these stocks often struggle when wallets are being closed.
That might be exactly what began to happen over the 20204 financial year. We all know that sticky inflation is an ongoing economic issue in Australia, as it is across most of the world's advanced economies. But consider this statement from a recent report in the Australian Financial Review (AFR):
Australian households experienced the largest fall in disposable incomes across the OECD over the past two years, and economists forecast it will take another two years for purchasing power to recover to pre-pandemic levels.
The report cites OECD data that shows Australia's real (inflation-adjusted) gross household disposable income per capita fell by 8% between March 2022 and March 2024. That compares to a rise of 1.2% in the United Kingdom, while the United States enjoyed a 3.1% increase. The OECD average was a 2.8% lift.
This oversized fall for the Australian economy was put down to a combination of factors. These included interest rate rises and an increased tax take following the pandemic. Population growth, which dilutes income per capita, also played a role.
Given these sobering statistics, it's perhaps no surprise that many ASX retail shares struggled this earnings season. Let's see how they do in FY2025.
