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Highlights
- JB Hi-Fi and Wesfarmers Lead Gains: Retailing heavyweights continue to perform well, despite Morningstar labeling them as overvalued.
- Liquor Market Worries: Concerns over softer liquor sales suggest potential structural shifts in consumer behavior, weighing on Endeavour sentiment.
- Margin Challenges: Morningstar warns of limited margin growth for retailers as higher household savings curb spending growth.
Australia’s retail sector saw some key players record modest gains today, with JB Hi-Fi (ASX:JBH) rising 0.4% to continue its recent uptrend and Wesfarmers (ASX:WES) adding 0.6%. Meanwhile, Endeavour Group (ASX:EDV) edged up 0.4% despite concerns over potential shifts in consumer preferences affecting liquor sales.
Strong Performers in Discretionary Retail
JB Hi-Fi and Wesfarmers have been at the forefront of a rebound rally in the Australian retail sector. According to Morningstar, both companies benefit from highly regarded management teams and their market-leading positions in discretionary retail.
Since October, JB Hi-Fi shares have surged by 18.8%, while Wesfarmers has risen by approximately 6%. However, Morningstar warns that both stocks appear overvalued at current levels, raising caution about their near-term growth prospects.
Flat Volumes with Household Goods Outperforming
Morningstar’s analysis of the September quarter revealed flat retail volumes overall, but household goods emerged as a bright spot. This trend has supported sales growth for JB Hi-Fi, Harvey Norman (ASX:HVN), and Kogan (ASX:KGN). The strong performance in household goods continues to underpin resilience in the discretionary retail sector, even as broader spending slows.
Concerns in Liquor Sales
Morningstar highlighted investor concerns surrounding Endeavour Group, noting that cyclically soft liquor sales could point to deeper, structural changes in consumer preferences. Despite these worries, Endeavour shares rose 0.4% today.
The investment firm also flagged challenges for retailers across the board, citing difficulties in achieving meaningful margin expansion. With household savings on the rise, discretionary spending growth could remain subdued, presenting an overhang for the retail industry.