As an investor, if you were asked how companies exposed to discretionary retail trade had been performing on the ASX over 2014 it's highly unlikely you'd reply that it had been a good year.
With leading stocks such as JB Hi-Fi Limited (ASX: JBH), Super Retail Group Ltd (ASX: SUL) and Kathmandu Holdings Ltd (ASX: KMD) down around 26%, 42% and 12% respectively, there is no denying the headwinds faced by the sector.
Given this tough operating environment, it's surprising then to learn that the share price of Harvey Norman Holdings Limited (ASX: HVN) has gained 17% this calendar year.
There would appear to be a number of factors that have contributed to investor enthusiasm for the stock.
Firstly, sales results for the three months ended 30 September 2014 were impressive. Like-for-like sales on a constant currency basis grew 2.8% in Australia, 0.4% in New Zealand, 9.3% in Slovenia/Croatia, 10.7% in Ireland and 24.8% in Northern Ireland.
Secondly, at the retailer's recent Annual General Meeting (AGM) it was announced (to the surprise of many followers) that the company would look to return franking credits to shareholders via a special dividend of 14 cents per share.
Thirdly, Harvey Norman operates a rather unique business model which during tough times sees the group provide funding support to its franchisees. This has the effect of constricting earnings during periods of depressed consumer confidence, however it also has a leveraged effect of boosting earnings once the cycle changes and support of franchisees is no longer required.
Further to run
While Harvey Norman is very well known for its computer and television offering, arguably its key strength and higher margin business is its furniture and kitchen appliance offering. With the home building boom rolling on, Harvey Norman is set to be a major beneficiary of completed builds – it's at this stage that occupiers look to kit their homes out with new purchases of furniture, stoves, and the like. Given this home building tailwind, 2015 could be shaping up to be an even better year for Harvey Norman than 2014.
