Is it time to sell your retail shares?

There have been updates from Michael Hill International Ltd (ASX:MHJ), Reject Shop Ltd (ASX:TRS), Wesfarmers Ltd (ASX:WES), and more this week. How is the retail sector performing?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This month there have been a number of quarterly results, conferences, and annual general meetings that have given investors a quick snapshot of how the retail sector is performing in FY 2019.

Should you be concerned or should you continue holding retail shares?

At the end of last week jewellery retailer Michael Hill International Ltd (ASX: MHJ) released a disappointing quarterly update which revealed a significant decline in sales. Michael Hill saw its global sales fall 8.8% on the prior corresponding period to $122.9 million. However, management has taken the blame for the decline, admitting that it underestimated the marketing and promotional activities required to support its strategic shift away from a reliance on discount-based pricing.

Earlier this week Reject Shop Ltd (ASX: TRS) advised that the first 15 weeks of FY 2019 had been a major disappointment. The discount retailer has seen comparable store sales fall 2.4% compared to the prior corresponding period following a severe deterioration in its sales over the last 8 weeks. Management blamed a lack of wage growth and increasing basic expenses such as fuel costs for the downturn. Which is quite surprising given how you'd expect a discount retailer to perform well when consumers are watching what they spend.

Wesfarmers Ltd (ASX: WES) also released a trading update this week for its Coles business. While the supermarket business performed very well, its petrol stations struggled. They posted a 14.8% decline in headline fuel volumes due to a substantial increase in the cost price of fuel caused by higher global oil prices. This could be a sign that rising fuel costs are starting to impact consumer spending. In addition to this, its supermarket business benefited from food inflation during the quarter, which could mean basic food items are getting more expensive.

Last week home furnishings retailer Adairs Ltd (ASX: ADH) revealed that sales have remained strong this year. It advised that it is on target to achieve its like for like sales growth targets with a 5.2% increase during the first 13 weeks of FY 2019.

Another positive report came from A2 Milk Company Ltd (ASX: A2M) earlier this week. The infant formula and dairy company reported that its sales growth had continued and it had won a greater share of both the Chinese infant formula market and the Australian fresh milk market.

What now?

Although the performances of Michael Hill and Reject Shop have been surprisingly bad, I feel these are company issues and not related to consumer confidence.

However, there is no getting away from the fact that rising petrol prices and food inflation could eat into the disposable income of consumers and lead to lower discretionary spending.

But I think it is too early to judge trading conditions on these updates and would suggest investors continue to monitor the sector during AGM season.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended The Reject Shop Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's when Westpac says the RBA will now cut interest rates

Will borrowers need to wait until the middle of next year for relief? Let's find out.

Read more »

Boys making faces and flexing.
Opinions

3 ASX 300 shares to buy and hold for the long run

I believe these stocks have loads of growth potential.

Read more »

Young girl drinking milk showing off muscles.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a great end to the trading week for ASX investors today.

Read more »

Hands reaching high for a trophy with a sunset in the background.
Record Highs

The ASX 200 Index is on its way to another all-time high today. Here's why

These blue chip stocks are driving the index towards a new record today...

Read more »

Group of friends trading stocks on their phones. symbolising the 3 most traded ASX 200 shares today
Share Market News

3 ASX mining stocks topping the most-traded list in October

Chinese stimulus news and company announcements likely contributed to the higher trading activity.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Share Gainers

3 ASX 200 stocks smashing the benchmark this week

These three ASX 200 stocks are leading the charge this week. Here’s how.

Read more »

Two people tired and resting after sports race.
Broker Notes

Fundie rates 2 ASX 200 stocks in short-term pain but with long-term gain potential

Blackwattle Investment Partners sees these 2 ASX 200 stocks as worthy of a buy and hold strategy.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Share Gainers

Why A2 Milk, EOS, GQG, and Mineral Resources shares are racing higher today

These shares are ending the week strongly. But why?

Read more »