Australia | Jan 17 2023
This story features UNIVERSAL STORE HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: UNI
Analysts have reviewed the retail sector, largely retaining assumptions that spending will slow ahead.
-Consumer spending is assumed to slow into the new year, despite little evidence to support the thesis to date
-Despite being concerned about the future, consumers are proving willing to spend through higher debt or lower savings
-Retailers with exposure to consumers with greater discretionary spend, defensive pricing power, or a growing moat and return on invested capital are preferred
By Danielle Austin
On the other side of the typical retail peak that is the Christmas-New Year holiday period, securities analysts have reviewed the retail sector, while trying to assess how the industry will fare in the new year.
There is broad consensus spending will slow in 2023, as the impacts of rising costs of living are further felt by Australian households. To date, however, there still is little evidence to support that thesis. Consumers have demonstrated a willingness to continue to spend through higher debt or lower savings.
Jarden identified five key themes it anticipates will shape the coming year for retailers. These are consumer health, particularly signs of sharp spending moderation; easing inflation; competition, particularly from Amazon; a likely increase in merger and acquisition activity as retailers look to increase scale; and alternative revenues, particularly from media.
In a closer look at online retailers, the broker notes travel, footwear and department stores proved the big winners over the holiday period, despite an overall -6% decline in traffic. In-store, the broker noted improved footfall, inflation and in-store conversion.
The broker retains a preference for retailers with exposure to consumers with higher discretionary income, such as youth, premium and value consumers, those with defensive pricing power, and those with a growing moat and return on invested capital.
Within its coverage, Jarden noted retailers with exposure to consumers with greater discretionary spend included Universal Store Holdings ((UNI)), Accent Group ((AX1)), Premier Investments ((PMV)), Treasury Wine Estates ((TWE)), The Reject Shop ((TRS)) and Domino’s Pizza Enterprises ((DMP)).
Retailers with defensive pricing power included Woolworths Group ((WOW)), Treasury Wine Estates, Costa Group Holdings ((CGC)) and Wesfarmers ((WES)).
Retailers with a growing moat and return on invested capital included Flight Centre Travel Group ((FLT)), Reject Shop, Wesfarmers and Woolworths.
Future remains hard to predict in specialty retail
In a closer look at specialty retail, Canaccord Genuity noted the sector experienced a surprisingly strong December half recovery following a tumultuous year. This broker anticipates the sector will experience increasingly challenging conditions in the coming year, and sees potential for negative commentary and further downgrades.
Potentially offsetting headwinds, according to the broker, is continuing strong consumer spending in select sectors, tailwinds from employment and migration trends, and strong execution from management.
With this in mind, and within its coverage, Canaccord Genuity sees Dusk Group ((DSK)) and Lovisa Holdings ((LOV)) as well placed in the current retail climate. The broker has some concern around Adairs ((ADH)) and the company formerly known as Kathmandu, KMD Brands ((KMD)), but sees potential for both to work through challenges.
According to analysts from Macquarie, spending in apparel continues to moderate. This broker reiterated a preference for small cap apparel retailers with scale, market leading and competitive brands, strong balance sheets and exposure to low price points and a younger demographic. With this in mind, Macquarie prefers Lovisa and Premier Investments.
Despite finding online traffic weak across its coverage in December, this broker finds trends consistent with its anticipation of normalisation in the retail industry. Macquarie suggested that travel and reopening categories, such as bars and apparel, in particular remained weak compared to pre-covid levels.
Different fortunes for Australian retailers were also a prominent feature when Super Retail ((SUL)) and Baby Bunting ((BBN)) released market updates yesterday. The first saw its share price rocketing higher on much better than forecast financials while the latter triggered another punishing sell-off.
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For more info SHARE ANALYSIS: ADH - ADAIRS LIMITED
For more info SHARE ANALYSIS: AX1 - ACCENT GROUP LIMITED
For more info SHARE ANALYSIS: BBN - BABY BUNTING GROUP LIMITED
For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED
For more info SHARE ANALYSIS: DSK - DUSK GROUP LIMITED
For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED
For more info SHARE ANALYSIS: KMD - KMD BRANDS LIMITED
For more info SHARE ANALYSIS: LOV - LOVISA HOLDINGS LIMITED
For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED
For more info SHARE ANALYSIS: SUL - SUPER RETAIL GROUP LIMITED
For more info SHARE ANALYSIS: TRS - REJECT SHOP LIMITED
For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED
For more info SHARE ANALYSIS: UNI - UNIVERSAL STORE HOLDINGS LIMITED
For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED
For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED