The resilience of Australian consumers has emerged as a surprising driver of this earnings season, with retailers reporting stronger-than-expected profits, significantly boosting sharemarket returns. As of this month, around 20% of ASX-listed companies have reported their 2023-24 results, and three-quarters of those upgrading their FY25 guidance were from the consumer discretionary sector. Notable names include white goods retailer JB Hi-Fi, e-commerce company Temple & Webster, and gym operator Viva Leisure, all identified by Citi as among the few that delivered upgrades alongside glassmaker Orora.
This trend of outperformance has led analysts to raise their price targets for the discretionary sector. Barrenjoey increased its target for JB Hi-Fi by 33% and Temple & Webster by 11%. Overall, the broker made 20 price target increases this week while reducing only 8, reflecting the positive momentum of this earnings season.
On the earnings front, Barrenjoey issued 24 downgrades, affecting companies like Aurizon, Seek, Lifestyle Communities, and Cooper Energy. However, the broker also upgraded earnings estimates for 17 stocks, led by AGL Energy and Beach Energy, with JB Hi-Fi and Temple & Webster standing out.
Fund managers and brokers are revising their previously pessimistic views of the sector, which has been under pressure from high interest rates and cost-of-living concerns that have dampened sales and squeezed margins. While these challenges remain, the positive share price reactions from reporting retailers suggest the initial outlook was overly negative.
“It’s been slightly better than what we thought, especially from an FY25 perspective. We’re not making as many downgrades as anticipated,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets, in an interview with AFR Weekend. She noted that consumer discretionary stocks have “caught the market by surprise.”
“Temple sent a strong signal this week, suggesting that Australian consumers are more resilient than some had assumed,” Jorritsma added. The online furniture and homewares retailer reported record annual sales of $498 million for 2023-24, with earnings before interest, tax, depreciation, and amortization (EBITDA) at $13.1 million, surpassing analyst expectations. The company’s share price jumped 23% on the day.
JB Hi-Fi shares also surged over 8%, buoyed by the announcement of a special dividend for shareholders, despite the company’s earnings dropping 16% to $647.2 million.
