Australian Retail Stocks Quietly Rebuilding Brands Investors May Be Missing
Retail brands are scrambling to stay relevant as shopper tastes move faster than traditional store formats. The latest Marks & Spencer push into edgier third party lingerie, including Ann Summers, shows how established players try to refresh their image, attract younger customers and create more reasons to visit or click. For investors, that kind of brand rejuvenation can change how a stock is perceived, for better or worse. This article looks at 3 stocks exposed to the same news trend and explains how this shift in retail branding could matter for your watchlist.
Michael Hill International (ASX:MHJ)
Overview: Michael Hill International is a long established jewellery retailer based in Australia that sells rings, necklaces, watches and other accessories across Australia, New Zealand and Canada, supported by warranty, care plans and in house financing. It reaches customers through a mix of physical stores and a growing online offering.
Operations: The company generates A$656.1 million in revenue from its Michael Hill branded jewellery business, with A$368.4 million from Australia, A$186.2 million from Canada and A$99.3 million from New Zealand.
Market Cap: A$134.7 million
Michael Hill International is trying to refresh a heritage jewellery brand in a similar way to Marks & Spencer, using new concepts like its Pendant Bar, sustainable lab grown diamonds and digital only brands such as Medley to appeal to younger shoppers and lift margins. Forecast earnings growth is described as strong, yet revenue growth is modest and net margins remain tight at 1.1%, with results affected by a large one off loss and ongoing store rationalisation. The stock trades on a premium P/E to the Australian Specialty Retail average, which highlights both the potential upside from a successful brand and digital refresh, and the risk if cost pressures, slow revenue growth or underperforming stores hold back that story.
Michael Hill International’s refresh story looks incomplete without the valuation angle. The stock’s premium P/E and slim 1.1% margins raise big questions that the DCF valuation analysis for Michael Hill International starts to answer, but one detail could change the whole picture
Baby Bunting Group (ASX:BBN)
Overview: Baby Bunting Group is a specialist retailer of maternity and baby products in Australia and New Zealand, selling prams, nursery furniture, car seats, toys, babywear and everyday essentials to parents and parents to be, both in store and online. It also offers services such as car seat installation and hire, breast pump hire and in store consultations that help build long term customer relationships in the critical newborn to three year age bracket.
Operations: Baby Bunting Group generates A$539.0 million in specialty retail revenue, with A$521.4 million from Australia and A$17.6 million from New Zealand.
Market Cap: A$140.8 million
Baby Bunting Group is aiming to do in baby goods what Marks & Spencer is doing in lingerie. It is using an expanded online offer and a marketplace of third party brands to turn its trusted stores into a go to destination for a younger, digitally native customer. Recent earnings growth, a lift in net margin to 1.4% and signs of gross margin recovery sit alongside clear risks from funding through external borrowings and tough online competition. For investors, the mix of a specialist brand, higher margin private label ranges and an improving omnichannel platform presents Baby Bunting Group as an example of the brand rejuvenation theme, but the full picture only becomes clear when you look beneath the surface of those growth and valuation assumptions.
Baby Bunting Group’s combination of improving margins, private label ranges and a growing online marketplace could be setting up a quieter earnings rebuild that the market has not fully priced in yet. Get the fuller picture in the analysis report for Baby Bunting Group
Universal Store Holdings (ASX:UNI)
Overview: Universal Store Holdings is an Australian youth fashion retailer that sells clothing, shoes, accessories and gifts across its Universal Store and Cheap Thrills Cycles segments, reaching customers through a national store network and online channels.
Operations: Universal Store Holdings generates about A$330.3 million in revenue from its Universal Store and Perfect Stranger segment and A$41.2 million from Cheap Thrills Cycles, with A$359.4 million of revenue reported in Australia and A$12.1 million eliminated as inter segment revenue.
Market Cap: A$559.3 million
Universal Store Holdings sits in the middle of this trend, with youth focused fashion, on trend product ranges and vertical brands like Perfect Stranger. Management describes these as growing online and in store, with tight inventory control and premium pricing. Earnings growth has been strong in recent years and margins are currently healthy. The stock trades on a P/E below both the Australian Specialty Retail average and peers, and some analysts see returns on equity staying high. However, funding relies on external borrowing and dividends have been patchy, so investors may wish to closely review the balance sheet and payout policy when assessing this brand rejuvenation story.
Universal Store Holdings looks like youth fashion momentum hiding in plain sight, with healthy margins and a below sector P/E that many investors may be glossing over. Before the story runs ahead of the numbers, tap into the 4 key rewards and 1 important warning sign
The three retailers in this article are only a sample of what is happening in brand refresh stories, since the full screener surfaced 28 more companies with equally compelling narratives through the Brand Rejuvenation in Retail Sector screener. Use Simply Wall St to identify and analyze the specific catalysts and narratives that matter to you, so you can focus on the highest conviction brand rejuvenation opportunities in the retail sector.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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