Reporting season preview
We think a late surge in retail spending saved Christmas for plenty of retailers (following a relatively difficult November/December period), while Amazon looks to have had little impact on most to-date (early days).
We believe underlying conditions are fairly reflective of the new norm for retail trading conditions (ie volatile, but growing).
Stocks to watch
We believe pockets of retailers will perform better than others for various reasons (eg cycling a low base in the pcp, new product releases and strong category trends).
We flag Apollo Tourism (ATL), Adairs (ADH), Bapcor (BAP), Beacon Lighting (BLX), Lovisa (LOV), JB Hi-Fi (JBH) and Noni B (NBL) – all of which have the ability to exceed 2H18/FY18 consensus forecasts/guidance, in our view.
We see some pockets of weakness: 1) auto and motorcycle retailing (organic growth negative in 1H18); and 2) those with meaningful skews to the 2H (eg DMP).
We upgrade ratings to Add (from Hold) on AP Eagers (APE) and Beacon Lighting (BLX), but downgrade to Hold (from Add) on Automotive Holdings (AHG) and Super Retail Group (SUL).
We maintain a clear preference for the specialty retailers with dominant market positions, less Amazon exposure and solid earnings growth prospects (risk to the upside).
Key picks include: Apollo Tourism (ATL), Bapcor (BAP), Beacon Lighting (BLX) and Lovisa (LOV). We also see solid medium-term upside in APE and BBN.
Morgans clients can access my full reporting season preview on the consumer discretionary sector, with further detail on changes to my forecasts, trend data and insights on each company mentioned above. If you are interested in finding out more, please contact your adviser or nearest Morgans office.
Disclaimer(s): Analyst may owns shares in some of the companies mentioned.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.