Aussie discretionary retailers face brighter 2025 as rate cut nears

Harvey Norman Holdings

18/12/2024 01:42

* 
      Australia's discretionary retailers expected to see
earnings
rise in 2025
    

        * 
      Analysts forecast interest rate cuts next year
    

        * 
      Monetary easing will spur consumer activity 
    

  
    By Sneha  Kumar and Rishav Chatterjee
       Dec 18 (Reuters) - Australian discretionary retailers
could benefit from expected interest rate cuts in 2025, analysts
say, as shoppers loosen their belts to splurge on items such as
electronics and footwear. 
    Retail spending has risen strongly, the latest data showed,
underlining tax cuts and strong consumer confidence, and is
expected to pick up in 2025 after the Australian central bank
begins to ease interest rates. 
    "Rate cuts will undoubtedly be the largest factor investors
will be looking at for the retail sector next year," said Stella
Ong, market analyst at share trading platform Superhero.
    Customers cut back on non-essential spending over the past
two years as wallets were squeezed by high inflation coupled
with 13 cash rate hikes.
    Retailers have been hit by the high borrowing costs, which
eroded the buying power of consumers already cautious amid a
cost-of-living crisis.
    Investment research firm Morningstar said Australia's retail
spending was rebounding and the positive momentum was reflected
in the buoyant share prices of cyclical retailers - a sign
consumers were engaging in higher discretionary spending.
    "We expect tailwinds to persist in the near term, likely
supported by easing monetary policy. Cash rate futures are fully
pricing the first rate cut by April 2025, with two more to
follow by February 2026," the firm said.
    Citi analysts said they were watching how December trades
for retailers but expect them to perform well across 2025, with
steady interest rates, tax cuts and a strong labour market
supporting consumer spending. 
    Electronics retailer JB Hi-Fi  JBH.AX  and clothing retailer
Universal Store  UNI.AX  were among the top gainers, adding 83%
and 88.7%, respectively, for the year, as of the last close. 
   
 "The discretionary stocks that thrived in 2024 were those with
niche target markets including Universal Store  UNI.AX ," said
Grady Wulff, market analyst at online share trade platform Bell
Direct. 
    JB Hi-Fi, the No. 2 consumer electronics chain, recorded
stronger sales driven by a red-hot AI market, fuelling
expectations for better-than-expected earnings.
    The Reserve Bank of Australia's (RBA) potential move to
lower borrowing costs might aid economic activity and consumer
spending, further boosting the performance of non-essential
companies.
    Wulff said retailers might face subdued earnings growth in
the first half of 2025 but "an uplift is likely when interest
rate cuts enable greater discretionary spend in the latter half
of the year."
    Non-essential majors such as apparel retailer Accent Group
 AX1.AX , which owns the Dr. Martens brand, and Australian
billionaire Brett Blundy's jewellery brand Lovisa  LOV.AX 
posted double-digit share price growth this year. 
    Positive stock performance and their unique and niche
product offerings make them attractive picks for investors,
Wulff said. 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Universal Store share movement    https://tmsnrt.rs/3P7TSEJ
JB Hi-Fi    https://tmsnrt.rs/4iGrIyk
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Sneha Kumar and Rishav Chatterjee in Bengaluru;
Editing by Byron Kaye and Saad Sayeed)
 ((Rishav.Chatterjee@thomsonreuters.com;))