Stocks exposed to the Australian consumer have delivered a mixed bag during reporting which dovetails nicely into this note we wrote on the space earlier in the month Is Australian retail’s downturn just beginning?. One of the points raised in the note, which still applies, is “On headline multiples, ASX Consumer Discretionary looks fairly valued rather than obviously cheap, but arguably in the current environment are still rich.”
As we all know, the housing slowdown is becoming an increasingly important headwind for Australian discretionary stocks, with mortgage applications at Westpac down ~20% since the May Budget and falling property prices starting to weigh on household confidence and spending. The variance in performance across the leading retail names over the last month tells the tale: Lovisa (+34%) and Eagers (+11%) compared to JB Hi-Fi (-9%) and Harvey Norman (-2%), in general terms retailers without exposure to housing are faring better.
Stepping away from traditional retailers into discretionary-facing names, stocks driven more by gaming, travel, autos and broader consumer spending as opposed to housing activity are again faring better. If housing turnover remains subdued, we continue to anticipate the pain to be concentrated in big-ticket household purchases, rather than spread evenly across the discretionary sector – it’s time for investors to be very selective.
- We aren’t planning to increase our exposure to retail names, especially after their strong run into reporting season. We sold out of JB Hi-Fi (JBH) post their result.
