Guzman, Wesfarmers to deliver upbeat earnings for Australian discretionary retailers

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By Rajasik Mukherjee and Kumar Tanishk

(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, which includes Kmart and Bunnings hardware chain owner Wesfarmers, electronics retailer Harvey Norman and Mexican fast food chain Guzman y Gomez, 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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(Reporting by Rajasik Mukherjee and Kumar Tanishk in Bengaluru; Editing by Kate Mayberry)