Defying sentiment: The remarkable rise of consumer stocks

With many focussed on the "cost-of-living" crisis, you might think that discretionary retailers have struggled. This has not been the case.
Andrew Legget

Livewire Markets

One of the dominant topics of conversation in recent years has been the “cost-of-living crisis” in Australia.

As inflation started soaring in 2021, the Reserve Bank of Australia (RBA) was called into action. In a short period, the RBA’s cash rate would soon rise from 0.1% in April 2022 to 4.35% in December 2023.

This combination of higher consumer prices and rising mortgage repayments due to increased interest rates created an uncomfortable situation for many Australian consumers.

Monthly retail turnover statistics. (Source: Australian Bureau of Statistics)
Monthly retail turnover statistics. (Source: Australian Bureau of Statistics)

The result? Sluggish GDP growth (negative if you looked at it on a per capita basis), low consumer sentiment, and customers closing their collective purses and wallets.

With relief for consumers hard to come by, at least until the RBA decided to start cutting interest rates in February of this year, it paints a picture of a tough environment for those businesses trying to profit from our consumption – namely consumer discretionary stocks, especially retailers.

The curious case of consumer discretionary stocks

However, if you were to look at the performance of the S&P ASX 200 Consumer Discretionary Index, you’d see something different.

In fact, it’s quite the opposite.

1-year ASX 200 Consumer Discretionary Index performance vs ASX 200 (XJO) (Source: Market Index)
1-year ASX 200 Consumer Discretionary Index performance vs ASX 200 (XJO) (Source: Market Index)

Over the past year, the index that tracks around 23 of the Australian market’s largest consumer discretionary businesses is not only beating the market but also battling the communications segment as the best performing sector on the ASX during this time with a 1-year return of 16.7%.

Conversely, the S&P ASX 200 Consumer Staples Index – which measures the performance of listed companies whose products customers arguably need versus simply want – has had a much more difficult time, down 4.2% for the year.

Such a result defies conventional wisdom that during turbulent economic times, the discretionary sector should struggle as consumers cut back.

A reporting season wrap up

The lack of (some would argue, expected) restraint in discretionary spending was on show during the recent reporting season. The average revenue growth of ASX 200-listed discretionary retailers that announced results in August was around 6.0%.

There was also little evidence of one sector or one demographic doing better than another.

ASX Code

Company Name

FY2025 Revenue Growth

ABY

Adore Beauty

1.6%

ADH

Adairs

6.5%

AX1

Accent Group

1.6%

BBN

Baby Bunting

4.7%

BLX

Beacon Lighting

1.8%

CCX

City Chic Collective

2.3%

CTT

Cettire

-0.3%

DSK

Dusk Group

8.7%

HVN

Harvey Norman

7.4%

JBH

JB Hi-Fi

10.0%

KGN

Kogan.com

6.2%

LOV

Lovisa

14.2%

MHJ

Michael Hill International

0.0%

NCK

Nick Scali

5.8%

SSG

Shaver Shop

-0.4%

STP

Step One

2.8%

SUL

Super Retail Group

4.5%

TPW

Temple & Webster

20.7%

UNI

Universal Store Holdings

15.5%

Importantly, many also provided guidance that showed that sales growth continues to be strong in the early months of FY2026.

With discretionary stocks, in particular, retailers, running hot. The question for investors might need to shift from considering the economic risks that might impact consumer spending and company performance to considering the valuation risk of many of these companies.

Or perhaps, the dark clouds are behind them and clear skies ahead.

Only time will tell.


Andrew Legget
Senior Editor
Livewire Markets

Andrew has been an investor for more than 20 years and, for around half of that time, was employed as an analyst focussed on Australian and global equities. Intrigued by the power of storytelling, Andrew likes to merge quantitative and qualitative...

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