UBS says households are set to pull back on spending on new TVs, appliances and beds amid steep cost-of-living increases.
UBS retail analysts led by Shaun Cousins believe investors should steer clear of buying shares in those two ASX-listed companies as consumers rapidly shift their mindset as sharper cost-of-living increases arise.
Mr Cousins said those big-ticket item categories had been winners in the first two years of the COVID-19 pandemic as households spent up on items for the home when they were unable to travel, often bringing forward purchases. Households are likely to slow spending on big-ticket items. UBS says this will lead to a tougher time for the likes of JB Hi-Fi, led by chief executive Terry Smart.But the situation had changed with cost-of-living pressures rising on several fronts including steep jumps in petrol prices, while thewill also act as a dent to confidence because of the “wealth effect”.
UBS has a “sell” rating on Harvey Norman, and has a “neutral” rating on JB Hi-Fi, which also operates The Good Guys chain.He said investors were generally very cautious about discretionary retailers at the moment, and value investors were still on the sidelines because of the risk of more tough times.
Inflation is rising fast, with the Reserve Bank of Australia expected to again lift official interest rates in early July as itUBS said it remains to be seen whether competitors might seek to “discount aggressively” if sales begin to slow. Most retailers had higher than usual levels of inventory in warehouses because they had built a buffer of stock in the wake of severe supply chain disruptions.
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