Top broker Goldman Sachs has a sell rating on three popular ASX retail shares amid today's high interest rates, weak retail sales, and the most protracted period of negative consumer sentiment in 30 years.
In a recent note, Goldman analysts Lisa Deng and James Leigh said there is "better value" in ASX consumer staples than discretionary shares right now.
They noted that several ASX discretionary retail shares were trading at elevated price-to-earnings (P/E) ratios, and the broker's earnings forecasts for FY25 on those stocks were 5% to 10% below consensus.
The shares include JB Hi-Fi Ltd (ASX: JBH), Flight Centre Travel Group Ltd (ASX: FLT), and Premier Investments Limited (ASX: PMV), and in a new ratings update the broker has a sell rating on all of them.
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The state of play in retail
The latest Westpac Consumer Sentiment data reveals persistently low consumer sentiment over the past two years that shows "few signs of lifting", according to senior economist Matthew Hassan.
Hassan commented:
Indeed, outside of the deep recession of the early 1990s, this is easily the second most protracted period of deep consumer pessimism since we began surveying in the mid-1970s, with all other sentiment slumps lasting nine months or less.
Deng and Leigh said shoppers were "clearly increasingly value-focused" amid likely delays in rate cuts. (The broker recently changed its projected timeline for a rate cut from August to November.)
The latest retail figures from the Australian Bureau of Statistics (ABS) support this view. The data revealed the "weakest growth on record" outside the pandemic and the introduction of the GST.
Retail turnover rose by just 0.8% over the 12 months to 31 March, despite significant population growth.
Turnover fell by a seasonally adjusted 0.4% in March, following a 1% lift in January and a 0.2% rise in February.
ABS head of retail statistics Ben Dorber said consumers had pulled back on spending in March amid high cost-of-living pressures.
3 ASX retail shares to sell
Deng and Leigh commented that recent 3Q24 company results, channel checks, and the latest ABS retail data suggested Australian consumers were "increasingly price-conscious and selective about spending".
In their recent note, Deng and Leigh re-rated several ASX retail shares.
Their recommendations included six shares to buy, seven with neutral ratings, and three to sell, as follows.
JB Hi-Fi shares
The JB Hi-Fi share price is $57.53, up 1.72% currently and up 5.7% in the year to date.
Goldman has a 12-month share price target of $50 on this popular ASX retail share.
Deng and Leigh downgraded JB Hi-Fi shares from a neutral to sell rating, commenting:
We cut FY24-26e EBIT by 3-4% and EPS by 3-5% given softer growth in the Electronics category as well as rising competition, particularly for JBH AU, most noticeably from Officeworks.
Our FY25e EBIT and EPS are ~6% below Factset consensus.
Premier Investments shares
The Premier Investments share price is $29.59, down 0.37% currently and 4.89% higher in the year to date.
Goldman has a 12-month share price target of $25.10 on the owner of Just Jeans and Peter Alexander.
Flight Centre shares
The Flight Centre share price is $20.58, up 0.68% currently and 0.64% higher in the year to date.
Goldman has a 12-month share price target of $18.30 on this ASX retail travel share.
