Retail: FY22 Reporting Season Preview

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
11 July 2022, 9:00 AM
Sectors Covered:
Gaming and Retail

  • FY21 was a peak year for earnings for many retailers, but what we expect to have been a generally robust sales performance from the stocks we cover in 2H22 leads us to forecast an average of just 5% lower EBIT in FY22.
  • Inflationary pressures and a deterioration in consumer sentiment is likely to weigh on earnings in FY23. We have lowered our EBIT estimates by an average of 6% but expect many companies to deliver positive y/y growth in earnings in FY23 through network expansion and the absence of COVID disruption.
  • Our key picks are those that we believe have the best opportunities to expand their footprint in the year ahead. They are Lovisa Holdings (ASX:LOV), Breville Group (ASX:BRG) and Universal Store Holdings (ASX:UNI).

Harder times ahead

We expect many of the companies we cover to report a robust sales performance in 2H22. Overall retail sales continued to scale new heights in recent months, and we believe consumers have been generally prepared to pay higher prices without pulling back on discretionary expenditure.

A better sales performance than expected could lead to positive surprises from companies like Beacon Lighting Group (ASX:BLX) and Lovisa Holdings (ASX:LOV) when they release their FY22 results in August.

The trading environment is likely to deteriorate in FY23 as inflationary pressures on household budgets see consumers seek to economise on discretionary items. Consumer sentiment has already been hit hard by the rising cost of living and headlines around further inflation and rate hikes to come. Sentiment will improve in due course, but not for a while.

At the same time, retailers are experiencing significantly higher costs themselves. Labour, energy and many key inputs have become much more expensive, putting pressure on operating margins despite the mitigation of higher selling prices.

Changes to our earnings estimates

On average, we have lowered our EBIT estimates for FY23 by 5.6%. The largest reductions are for ADH (-17.0%), BLX (-12.3%) and AX1 (-9.3%). We have not increased EBIT estimates for any of the companies we cover.

On average, our FY22 EBIT estimates are unchanged, with higher estimates for Super Retail Group (ASX:SUL) and JB Hi-Fi (ASX:JBH) offsetting reductions for Adairs (ASX:ADH) and Accent Group (ASX:AX1).

Our estimates compared to consensus

Our estimates are generally in line with consensus for FY22. We are more cautious with our FY23 estimates, which are, on average, 2.8% below Visible Alpha consensus.

We are more bullish than consensus on LOV in both years and more bearish on SUL in FY22 and ADH in FY23.

Despite all this, we do see value in the sector

The ASX 200 Consumer Discretionary index has fallen 20% since the start of CY22. We believe this is overdone despite the clear reasons to expect a more challenging trading environment in the months ahead. We see value in many of the stocks we cover.

Our key picks are those with structural growth drivers through network and geographic expansion. They are LOV, BRG and UNI.

Find out more

Download full research note

If you would like more information, please contact your adviser or nearest Morgans office. 

Request a call Find local branch

Need access to our research?

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team

Create trial account 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

  • Print this page
  • Copy Link