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ASX retail stocks are going through a fascinating period.
The moderating of online sales and 4-decade high inflation is having an impact on all retailers, not just on consumer demand but on supply chains – thereby impacting profits even if these companies are price setters.
However, not all stocks are being harmed in the current environment.
In this article, we outline the Top ASX Retail Stocks in 2023.
All companies mentioned have managed to perform well in this environment and we have good reason to expect it will continue.
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The Top ASX Retail Stocks
1. Wesfarmers (ASX:WES)
Wesfarmers is not just the largest ASX retail stock but 10th largest company on the ASX.
It owns several businesses both in retail and elsewhere, including in chemicals and fertilisers.
We like this company most for Kmart and Bunnings, all of which are aimed at value-conscious consumers.
In 1HY23, it made $22.6bn in revenue, up 27% and a $1.4bn profit (up 14%) and CEO Rob Scott observed that consumers are turning to these brands in challenging times.
Consensus estimates for FY24 call for $43.2m in revenue (up 1%), $5.7bn in EBITDA (up 3%) and $2.25 EPS (up 4%).
This isn’t the fastest growing company amidst ASX retail stocks by any means, but not all are as well positioned to record growth in the months ahead as Wesfarmers is.
It yields a 3.76% dividend which isn’t inflation busting, but you can trust that there’s little prospect that the company will reduce or stop paying dividends.
2. JB Hi-Fi (ASX:JBH)
JB Hi-Fi operates its namesake electronic stores along with appliance outlet the Good Guys.
This company had elevated demand during the pandemic as people set up their home offices.
But even though sales have moderated, they have not gone backwards. Consumers need electronics regardless of inflation and are constantly upgrading to new models.
In FY22, JB Hi-Fi made $9.2bn in revenue (up 3.5%) and a $544.9m net profit (up 7.7%).
In 1HY23, its sales were $5.3bn (up 8.6%) and it made a net profit of $330m (up 14.6%).
Consensus estimates expect a modest retreat in FY24, although revenue is only expected to go down by 4%.
This ASX retail stock has been a generous dividend payer of late, currently yielding over 8%.
3. Universal Store (ASX:UNI)
Universal Store is a casual fashion chain targeted towards younger consumers.
Despite the stereotypes that younger consumers have less money and are likely to cut back their spending, this has not been reflected in the company’s results.
Granted, it recorded a less than ideal FY22 result as its total sales fell 1.4% and its underlying NPAT fell 30.6% to $21.1m. 1HY23 was better though, with 35% sales growth and 32% NPAT growth.
Also pleasing to investors is that it is pivoting towards selling some of its own brands, thereby helping the company’s margins.
Its flagship brand, Perfect Stranger, now accounts for 16% of sales and even has a dedicated store at Sydney’s Warringah Mall.
The company has been reluctant to provide guidance to shareholders, but consensus estimates call for good growth in FY24 – 12.7% revenue growth and 11.4% EBITDA growth.
Universal currently yields a 5.6% dividend yield, not quite inflation-beating but still impressive for an ASX retail stock right now.
Why aren’t supermarkets amongst the top ASX retail stocks?
Theoretically, supermarkets (specifically Coles and Woolworths) should be at the top of the ‘best ASX retail stocks’ list because it is the ultimate consumer staple category.
However, we think that even though they are better equipped than most other ASX retail stocks, they aren’t completely immune.
Although consumers have to stop at supermarkets, they will trend towards cheaper options, which eats into company margins.
Supply chains remain volatile as well due to labour shortages and extreme weather events.
But between the two, there’s a case to be made that Woolworths might benefit more simply because it operates discount retailer Big W which will likely benefit as consumers hunt for bargains.
This trend has been seen in the results of other companies such as Baby Bunting (ASX:BBN) that have hoped consumers will pay a premium, only to discover the hard way that they wouldn’t.
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