We're smack bang in the middle of the busiest retail season of the year, so what better time to have a look at what retail stocks are in favour?
Bell Potter has had a look at the big names in the sector and says while not all retailers are created equal, three in particular stand out as good buying at current levels.
Overall, the Bell Potter teams said retail has been "choppy as we've seen varying performance between discretionary categories with technology/electronics, wellness and sports and services such as cafes and recreation leading the suite while others such as mass apparel and lifestyle footwear and furniture and household goods lagging''.
They went on to say:
Looking ahead, 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 and balance sheet strength and support names who may grow via market share expansion with more diverse customer demographics and category exposures.
So now, on to their retail stock picks for December.
Universal Store Holdings Ltd (ASX: UNI)
The Bell Potter team says Universal is a leading youth-focused streetwear retailer with 100 stores under its Universal Store flagship brand, as well as private label brands Perfect Stranger and Thrills.
With a price-to-earnings (P/E) ratio of about 18 times, the Bell Potter team says the company is trading at a discount to its S&P/ASX 300 Index (ASX: XKO) peer group "and see the multiple justified by the distinctive growth traits supporting consistent outperformance in a challenging broader category''.
There is a longer term opportunity with three brands to grow margins organically via private label product penetration, and Universal is expected to benefit as youth consumers prioritise on-trend streetwear.
Bell Potter has a price target of $10.50 on Universal Store Holdings compared with the current price of $7.99.
Harvey Norman Holdings Ltd (ASX: HVN)
Bell Potter says Harvey Norman is the most diversified retailer in terms of category exposure and regional presence, "while benefitting from both as a quasi-retailer/landlord and channel mix via company operated stores and franchising''.
Bell Potter has a price target of $8.30 on Harvey Norman shares compared with $7.06 currently, and said the current P/E ratio was justified considering "multiple catalysts" for growth in the near and mid-term.
Adore Beauty Group Ltd (ASX: ABY)
The Bell Potter team said Adore is an "omni-channel retailer" selling more than 15,000 third party products from more than 360 brands as well as its own private label brands.
The Bell Potter team 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. We view ABY as well positioned to take advantage of the high performing beauty category within the Australian market.
Bell Potter has a price target of $1.25 on Adore Beauty shares compared with $1.20 currently.
