Big Miss In Retail Sales

Local economists had expected Australian retail sales to have grown by around 0.3% after a flat report in July.

Instead, retail sales fell by 0.6% in August, and, adding insult to injury, revised the July report to show a 0.2% decline. It is the first back-to-back decline in five years.

Retail names HVN and JBH have both seen their share prices drop over 15% since mid-August and yesterday’s report won’t likely give them a lift.

Over the medium-term, we see scope for HVN to trade back to $3.65 and JBH to slip to $21.70.

 

Harvey Norman

JB HiFi

 

Short Banks and Retailers

We like the short side of the banks and retailers coming into what will likely be a volatile period for equity markets in September & October.

The regional banks, BOQ & BEN look expensive.

Following their profit announcement on the 31st August, HVN should be on your wishlist as a potential short, with a stop losses above recent highs.

 

 

 

Algo Short Signal – Harvey Norman

The technical pattern for Harvey Norman started to break-down early this year when the price action traded through the $4.50 support level.

Since then, HVN made a low in June at $3.55 and has now had a counter-trend rally back to $4.50.

Our Algo Engine is now flagging the “lower high” structure and we’ve added HVN to the short trade list with a stop loss above the $4.75 area.

Short term traders may prefer to use the momentum indicators to compliment the entry and stop loss rule.

HVN reports on the the 31st August. The market is looking for NPAT to increase to $377m, (from $337m last year), and DPS up 1 cent to $0.18.

Overly optimistic property revaluations, along with weak consumer trends, concern us and support our bearish view.

Chart – HVN

 

Harvey Norman

Harvey Norman announced a record H1 result after property valuations and strong furniture and appliance sales lifted the company’s net profit by 39% to $257.3 million.

Underlying pre-tax profit rose 20.6% to 290.49 million, which is the highest first-half result in the retailer’s 30-year history.

The company declared an interim dividend of 14 cents (fully franked), which is up 1 cent on the same time last year.

JB Hi-Fi 1H17 Result

JB Hi-Fi  1H17 earnings results  beat expectations driven by strong sales and  gross margin expansion.

1H17 underlying NPAT of $125 million represented growth of 32%. Assuming FY17 EPS of $1.87, it places the stock on a forward yield of 4.1%.

Our Algo Engine generated a buy signal in both retail names back in December.

Chart – JB Hi-Fi
Chart – Harvey Norman

 

 

 

US Retail Sales Post A Mixed Result

Friday’s US Retail Sales report showed strong demand for automobiles and furniture, providing further evidence that the economy ended the fourth quarter with momentum at the retail level.

The Commerce Department reported that retail sales rose 0.6% in December after increasing by 0.2% in November. Sales were up 4.1% on a year-on-year basis from December 2015 and rose 3.3% for all of 2016 versus 2.3% for all of 2015.

The Core Retail sales figures, which exclude cars, gasoline, building materials and food, rose 0.2% after being flat in November.

The Core Sales data corresponds more closely with the consumer spending component of the GDP and printed below the 0.4% forecast. Despite the smaller gain in Core Retails sales, the consumer spending trend in the US remains solid.

Chart – HVN

Retail and Transport

Let’s take a quick look at a few names that should prosper from the Christmas period spending activity.  In the US I’ve focused on Amazon and FedEx as two relevant examples and domestically, I’ve looked at Harvey Norman and JB HI-FI.

We had buy signals from the algo engine on these names and our preference was the long position in HVN, which has now rallied 10% from the November low.

Chart - Amazon

Chart – Amazon

FedEx
Chart – FedEx
Chart - Harvey Norman
Chart – Harvey Norman
Chart - JB HI-Fi
Chart – JB HI-Fi

Harvey Norman – Algo Buy Signal

Harvey Norman and JB Hi-Fi have sold off recently and now reflect at a “higher low” price formation within a broader uptrend. Our algo engine has triggered buy signals on both of these names, so we will take this opportunity to look a little closer.

Harvey Norman reported a solid Q1FY17 trading update, yet the share price has sold off over 15% following questions being raised over the group’s accrual accounting practises. The strong history of free cash flow generation should begin to dampen investor concerns and lift share prices.

FY17 revenue is likely to be up 7% year-on-year to $1.9b, EBITDA $650m and NPAT $375 which will be up 10% on FY16, placing HVN on a forward yield of 7%.

Momentum studies suggest HVN is worthy of consideration: FY15 to FY16 EPS growing by 25% or from $0.24 to $0.30 per share.

hvn
Chart – Harvey Norman
Chart - JB Hi-Fi
Chart – JB Hi-Fi