Equity analysts surprised by the recent retail landscape

Equity analysts surprised by the recent retail landscape

In this week’s video insight, I explore the recent performance of the retail sector. Companies like Cettire, Temple & Webster, Nick Scali, and JBHi-Fi have surprised analysts with their robust performance, leading to a reassessment of sales projections. I discuss the unexpected resilience of retailers in the face of January’s challenges and discuss the implications of these developments for the future.

Transcript

Hello, and welcome to this week’s video insight. Today, we’re delving into the recent performance of the retail sector and the surprising turn of events that has left analysts reassessing their bearish forecasts.

Equity analysts had cast a shadow of pessimism over the retail landscape, citing concerns ranging from interest rates to consumer sentiment. Many believed that the robust sales seen during Black Friday and Cyber Monday had merely borrowed from the festive season’s demand, setting the stage for a bleak January.

However, as half-year results trickle in, we’re witnessing a different narrative unfold. Companies like Cettire, Temple & Webster, Nick Scali, and JBHi-Fi have defied expectations, with their stock prices soaring by as much as 20 per cent.

The market appears particularly buoyed by the positive January trading figures, a stark contrast to earlier projections. Nick Scali and JBHi-Fi, reliant on crucial January sales in furniture and appliances, have reported unexpectedly strong performance.

Further reinforcing this optimism, the Westpac Melbourne Institute Consumer Sentiment Index, which jumped 6.2 per cent from 81 in January to 86 in February, the highest reading in 20 months. While pessimists still outnumber optimists, easing inflation, a belief that the Reserve Bank of Australia has concluded its tightening campaign and anticipated tax cuts, are all contributing to a swing in sentiment.

Indeed JBHi-Fi’s CEO, Terry Smart, pointed to the same factors and added easing inflation to the sentiment shared by consumers and analysts.

JB Hi-Fi reported a 2.2 per cent decline in total group sales for the first half. Earnings before interest and tax (EBIT) was also down – by 19.3 per cent versus the previous corresponding half – and the EBIT margin also declined 159 basis points to 7.49 per cent. The EBIT and net profit after tax (NPAT) results, however, were 5 per cent and 6 per cent better than expectations, respectively, and JB Hi-Fi Australia’s sales – which are 70 per cent of group sales – were up 0.7 per cent, materially better than consensus forecasts.

Meanwhile, Nick Scali’s impressive results and the scale benefits of its strategic acquisition of Plush have caught analysts off guard, leading to a reassessment of sales projections. Nick Scali is a company we frequently wrote about the merits of last year – its share price is now 50 per cent higher. The company’s 1H24 results beat expectations, reporting a reacceleration in trading momentum during the Dec quarter. Surprised by the news, analysts are lifting sales assumptions amid the gradually improving consumer backdrop.

Digital retailers like Cettire and Temple & Webster have also delivered stellar performances, with both companies surpassing market expectations.

Cettire announced an outstanding 1H24 result. Headline numbers were well ahead of consensus, with net revenue re-accelerating in November and December, lifting half year sales 89 per cent above the previous corresponding half. Underlying EBITDA of $26.1 million was up 56 per cent year-on-year and more than 20 per cent above consensus.

Over at Temple & Webster, the company reported a solid result for 1H24. Revenue of $254 million was up 23 per cent versus the first half of FY23 and came in one per cent ahead of consensus. Cash flow was strong and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $7.5 million was about 23 per cent ahead of consensus.

While it may be premature to declare a holiday miracle, it’s evident that retailers have navigated the challenges of January with resilience. As we move forward, all eyes will be on how these trends evolve in the coming months.

Thank you for joining us and we look forward to chatting with you again next week.

The Montgomery Small Companies Fund owns shares in Cettire. This blog was prepared 15 February 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Cettire, you should seek financial advice.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.