Will retail stocks provide a Christmas bonus?

Retail sales on the up as consumer confidence grows

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published December 3, 2013 12:36 pm AEDT

With most retailers predicting a good Christmas shopping season, usually their busiest and best time of the year, now might be the perfect time to pick up some retail stocks.

Data released by the Australia Bureau of Statistics (ABS) today is also positive for the sector, with retail sales rising a seasonally adjusted 0.5% in October, ahead of market expectations of 0.4%. Retail turnover was also higher than a year ago, recording growth of 3.6% compared to October last year.

Over the past three months retail trade is up 0.6% compared to the three months before that where we saw a rise of just 0.1%. Consumers are gaining in confidence and opening their wallets more freely thanks to record low interest rates, rising property prices and decent gains on the sharemarket. This suggests that consumer spending is recovering having seen fairly subdued periods this year.

Department store retailers David Jones (ASX: DJS) and Myer Holdings (ASX: MYR) recently noted that they were cautiously optimistic about the upcoming Christmas shopping season. Other retailers such as Super Retail Group (ASX: SUL) and discount variety store The Reject Shop (ASX: Tis) have also recently given positive outlooks as they head into the Christmas sales period.

While very few retailers look cheap currently, earnings growth over the next few years could see revenues and profits soar. Earnings have been depressed over the past few years as retailers come to grips with heavy competition from online-only retailers, and as they ramp up their own online sites. Cost cutting, a focus on key and exclusive brands, improving customer service and providing a better in-store experience are also key strategies the retailers have adopted. These strategies may take time to implement but should serve retailers well in the years ahead.

Foolish takeaway

At current prices Myer appears to be the cheapest of the retailers, but Specialty Fashion Group (ASX: SFH) and furniture retailer Nick Scali (ASX: NCK) could also be worthy of further research.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.