Preview: Guzman, Wesfarmers to deliver upbeat earnings for Australian discretionary retailers

Harvey Norman Holdings

19/02/2025 07:17

By Rajasik Mukherjee and Kumar Tanishk
       Feb 19 (Reuters) - Australia's discretionary retailers
are expected to report improved half-yearly earnings, investors
said, as easing inflation and tax cuts encouraged weary
consumers to start spending again.
    The Australian retail sub-index  .AXDJ , which includes
Kmart and Bunnings hardware chain owner Wesfarmers  WES.AX ,
electronics retailer Harvey Norman  HVN.AX  and Mexican fast
food chain Guzman y Gomez  GYG.AX , has gained 8.2% so far this
year. 
    "On balance the discretionary retailers will report well,"
said Luke Winchester, portfolio manager at Merewether Capital.
    "The 'cost of living crisis' has been well documented in
Australia over the last couple of years, however the retailers
have been resilient in the face of that."
        Australia's central bank delivered the country's first
interest rate cut in more than four years on Tuesday but warned
it was too early to declare victory over inflation and said it
was cautious about further easing.
        Guzman y Gomez is the pick for this reporting season,
analysts said, after its sizzling initial public offering debut
last year.
 
   
    Ron Shamgar, head of Australian equities at TAMIM Asset
Management, said he was optimistic about Guzman's results but
noted potential risks to its share price. 
    "There would be a significant amount of stock coming out of
escrow post the results which could place some pressure on the
share price in the short term," added Shamgar.
    Guzman is slated to release its half-year earnings on
February 21. 
    Perth-based conglomerate Wesfarmers, which in January
announced it would wind down Catch, its loss-making online
retailer, is expected to post a slight increase in half-year
profit, LSEG data showed. 
    The company will report its first-half performance on
February 20. 
    "Wesfarmers' share price has been surging over the past
year," said Tim Waterer, chief market analyst with KMC Trade,
adding that shareholders expect the company "will 'deliver the
goods' on the earnings front."
    Grady Wulff, an analyst with Bell Direct, said investors
might focus more than usual on companies' second-half prospects
"to determine whether the headwinds of high cost of living
pressures are hitting discretionary spend or not".
    With lower interest rates and tax savings, consumers might
make more discretionary purchases, reversing the trend of
frugality that has characterised the past two years when they
put non-essential purchases on hold.
    "The retailers will be one of the sectors that benefits the
most from easing interest rates. The tailwinds for our
discretionary companies will be strong heading into the rate cut
cycle," Wulff said. 
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Wesfarmers' 1H earnings    https://tmsnrt.rs/430RW9j
Guzman's share price    https://tmsnrt.rs/43l7x3Z
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 (Reporting by Rajasik Mukherjee and Kumar Tanishk in Bengaluru;
Editing by Kate Mayberry)
 ((Rajasik.Mukherjee@thomsonreuters.com;))