The ANZ-Roy Morgan weekly consumer confidence index has rebounded above levels last seen before the mid-May federal budget was handed down to Australian households. The latest survey rating was 113.5, a level not seen since early April a month before the budget.
It's unlikely you can cut benefits to the extent the government proposed without shaking consumer confidence and several retailers reported profit downgrades as a result of falling sales in the second half of the 2014 financial year.
According to the ANZ-Roy Morgan survey consumer confidence levels are still notably below the highs seen in the spring of 2013. However, if today's reported rebound does represent the start of spending growth some marked down stocks may be opportunities at today's prices.
Benefit and subsidy cuts are likely to hit consumer confidence especially hard at the lower end of the market which is why groups like The Reject Shop Ltd (ASX; TRS) recently downgraded profit forecasts.
In so doing it referred to a drop-off in consumer confidence during May, however, indications that may be reversing suggest Reject Shop shares may represent good value trading today for as little as $9.64. Like the shop's products, the shares have gone on half price sale themselves since the spring of 2013, when the ANZ-Roy Morgan survey recorded confidence at its recent highs.
Another discount retailer that was forced to downgrade profit forecasts in June is the operator of brands like Rebel Sport, Supercheap Auto and Ray's outdoors, Super Retail Group Ltd (ASX: SUL). The share price fall mirrored the profit downgrade and at $9.35 shares are now trading some 40% below the highs experienced in the spring of 2013.
Department store operator Myer Holdings Ltd (ASX: MYR) has not issued a profit downgrade, however sales have been flat on a comparable store basis. This as the group struggles to find traction against the online headwinds and increased competition from foreign fast-fashion phenomenons like Topshop and Zara. However, if able to deliver a sales rebound over time, today's price of $2.25 will seem cheap over long-term horizons.
Harvey Norman Holdings Limited (ASX: HVN) is another business reliant on household spending which saw like-for-like sales up 5.2% for the nine months ending March 2014. Harvey Norman has also built its own substantial property portfolio giving its balance sheet strength and a competitive edge over other retailers more reliant on balance sheet intangibles and goodwill. Harvey Norman is trading on just 14.5 times analysts' projections for 2014's earnings with a 3.3% dividend yield.
Of the above stocks I would favour The Reject Shop and Harvey Norman on a valuation to future outlook basis, although there's another stock in the consumer discretionary sector I think has an outlook to valuation basis far better than them all. Incredibly, it also pays a dividend around 7% when grossed up for its fully franked status.
