“Crowded malls and increasing spend in discretionary areas such as apparel and restaurants are flattering the image of retail spend, but we note that consumers going out more means they are staying home less, diverting spend away from the elevated household goods segments.”
Macquarie has subsequently downgraded Wesfarmers, JB Hi-Fi and Domino’s Pizza to Neutral, and switched its preference to staples such as Coles and Woolworths over discretionary.
“We make no changes to our target prices for these stocks, but believe valuation is full,” Macquarie said.
In Wesfarmers’ case, the firm said the retail businesses have benefitted from consumers at home.
“However, we expect Bunnings’ booming sales to wind down as normal life resumes. We note supply chain challenges evident at Kmart and Target and provide store visit photos in this report.
For Domino’s, Macquarie sees the brand as outperforming during economic uncertainty but reopened restaurants and bars are likely to divert some spend from takeaway in coming months.
An uncertain outlook for discretionary spend and The Good Guys’ s high exposure to housing indicators makes JB Hi-Fi’s valuation appear “stretched”.
The ASX 200 was up 2.5 per cent in June and has now rebounded about 30 per cent since the March 23 low.
Consumer sectors were the best performers for the month, with discretionaries up 5.1 per cent and staples 4.8 per cent in a rare outperformance of both cyclical and defensive consumer sectors.
Macquarie stipulated the nation’s wider retail recovery remains fragile and consumer confidence can easily be dented by virus outbreaks.
However, as the world and consumer settings return to a more normal setting over the next couple of years, so too will spending patterns.
“This suggests that using FY20 or FY21 as a base year for calculating sustainable earnings and valuation is likely to lead to disappointment,” the firm said.