“But in the last 12 months that has changed, and what we’re going to see this reporting season is the difference between retailers in strong categories with good positions, and the rest.”
Nicholas Condoleon, head of research at Ausbil, JB’s fourth-largest shareholder, was more cautious, saying he predicted just one or two more similar results.
There are some stocks in the market that are definitely priced for perfection, and they really need to live up to or beat expectations.
Russell Investments portfolio manager Andrew Zenonos
“I’d expect to see some material disappointments and some small, isolated pockets of surprise. Maybe we’ll see one or two others,” he said.
“There’ll be some disappointments and probably negative surprise. The strengths will be quite isolated and the tone will be quite cautionary.”
Mr Condoleon said some of those negative surprises could be for companies operating in the discount department store sector, which he said was in a “world of pain”.
Andrew Zenonos, portfolio manager at top-20 shareholder Russell Investments, said he expected a “lot of volatility” in the market, and JB Hi-Fi’s outperformance would lead to investors rebasing their estimates.
“There are some stocks in the market that are definitely priced for perfection, and they really need to live up to or beat expectations in order to be rewarded by the market,” Mr Zenonos said.
“On the other side of that, some are priced for absolute disaster, and if that doesn’t eventuate we expect to see those stocks be well rewarded.”
‘Solid, not spectacular’
Mr Zenonos said retail was not dead but the sector was “definitely patchy” and there could be more surprises in store for shareholders.
Negative surprises could be in line for any companies with exposure to big-ticket items, Mr Christensen said, referring to the struggles at The Good Guys as an indication the housing market will have a significant effect on retailers.
National Australia Bank continued to highlight weakness in the retail sector in its monthly business survey released on Tuesday. It had declared the industry to be in recession in June, and continued that outlook for July despite an increase in business confidence.
“Quite worryingly, there appears to have been little boost to activity in the sector with conditions weakening further – the sector is currently facing recessionary levels of activity according to our measure,” NAB chief economist Alan Oster said.
Super Retail Group is set to reveal its full-year results on Thursday. With Pengana Capital a top 10 shareholder for the $1.7 billion retailer, Mr Christensen said he was expecting similar performance to JB’s.
“I certainly don’t expect any amazing upside, it’s not going to be Super Retail’s strongest year,” he said.
“It will be solid, not spectacular, but in the context of consumer sentiment and what investors are fearing, that would be a good result.”
Looking forward for JB Hi-Fi, Mr Condoleon said a number of stimuli flowing through from rate cuts, income tax relief and the stabilisation of house prices meant he was positive about the outlook for 2020.
“When we look at the economic environment over the balance of the year, it looks quite conducive to consumer spending,” he said.
“But the consumer has also been in a state of cautiousness for several years, so I’m not expecting to see a sudden pickup.”
The Good Guys will continue to be a dark spot on JB Hi-Fi’s record while housing conditions languish, but if a turnaround is seen the company could outperform.
“A stabilisation and potential pick up in the housing market over the next 12 months will serve the JB business well, but will serve The Good Guys even better,” he said.
Dominic Powell writes about the retail industry for the Sydney Morning Herald and The Age.