To set the current scene, I’ve been warning that a rally testing time would eventually happen and now it has started. Undoubtedly, the professional traders who determine short-term market direction are using Spain’s leadership procrastination as well as street protests, Germany’s slowdown and weakish China data to question the market. Of course, sensible profit-takers will be saying it’s time to sit on the sidelines on a pile of cash until buy signals re-emerge. And they will eventually show up.
So back to the retail story that doesn’t look too promising, given the latest report from David Jones (DJS). The retailer saw a 40 per cent fall in profit for the full year and didn’t even have a shot at guidance! That’s a bad look.
Against that, if it can’t sell clothes and homewares to Aussie shoppers, it will sell real estate, with the Sydney and Melbourne CBD properties looking likely to be flogged for a figure speculated to be $612 million.
Retailers in this country are behind the 8-ball and are being snookered from all directions from the high dollar, relatively high wages, new online rivals and a de-vibed consumer who is saving like never before! There have also been some second-rate management issues as well and it showed in DJ’s results, which slumped from $168.1 million last year to $101.1 million this year. And the company’s share price has been virtually halved over two years. But is it time to buy the troubled retailer or any other player in this space?
Trying to get a leg up from avid market watchers, I went to FN Arena’s Rudi Filapek-Vandyck and this was his summary: “There is not one bricks and mortar retailer that is being generally liked as the best one.” He says some like Super Retail Group (SUL), but it is believed “to be a bit on the expensive side”.
However, he has another worthwhile view:
“Of course, if you broaden the term ‘retailer’, then you’ll find that a stock such as Breville Group is universally liked, even after the impressive gains booked already this year.”
On DJ’s price targets and forecasts, the experts on FN Arena are all negative! For Myer (MYR), it’s fairly similar but Rudi does point out the following: “Look more closely and you’ll spot a few brokers being very positive.”
Meanwhile, Gary Stone of Share Wealth Systems was also reluctant to give us a “buy” on retail stocks “but if I had to choose between only these two, then technically the DJS chart looks better over the last three months. Even though, since listing, DJS has slightly underperformed MYR on the charts.”
That said, Gary did give us a tip for one retail stock: “The Reject Shop (TRS) is looking quite good but we should expect a retracement maybe down to the $11.20 area, which should offer a good buying opportunity.”
I don’t think there is a need to rush to retail as the likes of DJs and Myer will need the dollar to fall big time to give them a free kick and that could be a year or two off.
They could be dividend plays but that could easily be stripped down further if these retailers don’t lift their game.
Buying big retailers is a speculative play but I do think they’ll eventually find a better game plan, though it could take longer than we would want.
If you want to use Buffett’s advice — be greedy when everyone is fearful — remember he generally goes for businesses that everyone uses and needs every day.
Myer and DJs were once like that but have they lost it and can they find it? That’s what your gamble will be based on.
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