Consumer discretionary stocks are the worst performers on the market during lunch time trade following disappointing retail sales figures for July.
The sector tumbled 2% into the red compared to the 0.5% loss by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
The Australian Bureau of Statistics (ABS) said that retail sales fell 0.1% last month compared to June – marking the first contraction in 14 months. This is well below what the market was expecting given that economists were forecasting growth of 0.4%.
The weak reading will add to market jitters following Australia's weaker than expected gross domestic product (GDP) growth yesterday. My colleague Mike King wrote about what that means for your investments here.
Coming back to the sales data, retailers selling clothing, footwear and personal accessories fared best with the category registering a 2.9% increase.
Not that you can tell from the share price performance of Premier Investments Limited (ASX: PMV), which shed 3.9% to $11.65, although women apparel group Specialty Fashion Group Ltd. (ASX: SFH) is holding its ground with the stock trading flat at 59 cents.
Premier Investments, which owns brands like Just Jeans and Smiggle, is starting to look interesting again from a valuation perspective. The stock is currently trading on a 2015-16 consensus price-earnings of 18x and would be a buy in my book if the share price drops under $10, which is where it was at the start of the year.
Department stores were the second best performers, according to the ABS data. But the news won't be of much comfort to Myer Holdings Ltd's (ASX: MYR) shareholders with the stock crashing 21.9% to 94.5 cents when it emerged from a trading halt to undertake a large capital raising.
Myer needs the cash to invest in its $600 million five-year turnaround strategy, and as I wrote on Tuesday, shareholders are probably better off participating in the capital raising.
Household good retailing was the worst of the bunch with sales in the category falling 1.9% after a big 2.4% jump in June. It appears that the impact to the federal government's $20,000 small business tax write-off was short lived.
The government will need to do more to stimulate the economy as I don't think another interest rate cut alone can do the trick.
It is perhaps most disturbing that New South Wales and Victoria contributed to the retail sales slump as these states have been the most resilient to the economic downturn thanks to the property boom. Sales from both states fell 0.2%.
The direction the economic data is pointing to, this is probably going to be a long September for investors.
