With emerging headwinds for consumer discretionary shares, analysts at Bell Potter have provided updated guidance on where to look within a choppy sector.
Despite economists now tipping an increase for the cash rate at this month's RBA meeting, Bell Potter still sees opportunity for a few consumer discretionary shares.
Sector overview
In the broker's Monthly Bell report, the analyst team said they have seen varying performance recently between discretionary categories with technology/electronics, wellness & sports and services such as cafes & recreation leading the way.
Meanwhile others such as mass apparel & lifestyle footwear and furniture & household goods are lagging.
While the pause in interest rate cuts in Australia limits catalysts for the Consumer Discretionary sector, we continue to prefer key beneficiaries from the rate cuts seen so far and category outperformers. We continue to look for retailers with differentiating customer value propositions & balance sheet strength and support names who may grow via market share expansion with more diverse customer demographics.
The report said to expect another year of growth in the promotional period around Black Friday. Beneficiaries are expected to be technology products, household appliances and gifting driven purchases.
The 2025 projections for the Black Friday seasonal period in Australia (as per Roy Morgan and Australian Retailers Association) sees a further 4% increase in the 4-day weekend retail spend compared to a 3% increase in 2024.
The broker listed three high conviction consumer discretionary with buy recommendations.
Adore Beauty Group Ltd (ASX: ABY)
Bell Potter said key drivers for business growth are its continued store-rollout targeting a network of 25+ stores, along with its private label brands and high-margin retail media arm contributing to margin expansion and thus a strong earnings trajectory.
It views this consumer discretionary stock as well positioned to take advantage of the high performing beauty category within the Australian market.
Target price: $1.25.
Harvey Norman Holdings Ltd (ASX: HVN)
As a leading household goods retailer in Australia and growing presence globally, Bell Potter said Harvey Norman has seen modest growth in its independent franchisee base in Australia and expanded its company operated global store print over the last 5 years.
It sees Harvey Norman as one of the most diversified retailers in terms of both categories and regions, while benefitting from both as a quasi-retailer/landlord and channel mix via company operated stores and franchising.
Target price: $8.30.
Universal Store Holdings Ltd (ASX: UNI)
The company has ~85 stores under its flagship 'Universal Store' brand and is expanding private label brands by growing the stand-alone format of 'Perfect Stranger' and 'Thrills' with more than 100 stores in total.
Bell Potter said at ~18x FY26e P/E (BPe), it sees Universal Store shares as trading at a discount to the ASX300 peer group. Its optimism is justified by the distinctive growth traits supporting consistent outperformance in a challenging category, longer term opportunity with three brands, organic gross margin expansion via private label product penetration (currently ~55%) and management execution.
Target price: $10.50.
