Weekly Broker Wrap: upside for household goods; outlook for the Australian consumer; SMEs doing it tough; and preferred stocks within the furniture & hardware category.
-Upside for the Household Goods sector in FY25
-Conditions and confidence levels for the Australian consumer, small businesses
-Jarden's preferred stocks in the Furniture & Home category
Upside for the Household Goods sector in FY25
Jarden sees a more positive macroeconomic outlook for the Household Goods sector into FY25, with hardware set to outperform other categories as it is skewed towards early-stage housing development, followed by furniture and electronics that are driven more by the replacement cycle.
An around ten-month pipeline for construction will provide the early stage development activity to boost hardware, explains the broker.
Rising house prices are expected to help underpin a big lift in spending for the Household Goods sector, along with repair & remodel (R&R) activity, cycling of weaker new housing, and easing interest rates.
To explain why hardware benefits first when housing sentiment improves, Jarden point to the less than five-month historical lag between property values and hardware, with a further two-to-three-month lag between the hardware upswing and furniture sales.
For furniture,
The broker cautions underestimated changes are looming for major household goods operators in
Jarden leans toward companies less exposed to the competitive threat posed by Amazon's entry into bulkier items such as
Across the household goods space, the broker retains its preference for
Conditions and confidence levels for the Australian consumer and business
Australian consumer confidence and sentiment levels will pick-up materially over the second half of 2024 as Stage 3 tax cuts provide a strong boost to household disposable incomes, anticipates
The bank attributes current weakness in consumer confidence to falls in real (adjusted for inflation) per capita household income. This income measure declined by -2.2% over 2023, with the pace of decline broadly mirroring the low level of consumer confidence as measured in the ANZ-Roy Morgan Australian Consumer Confidence survey.
Consumer sentiment is partly a function of inflation, interest costs, tax payments and the unemployment rate, all which impact on household disposable income, explains ANZ. Hence, the expected boost to sentiment from upcoming tax cuts.
Equity market performance and recent sentiment also impact on consumer sentiment, with the latter highlighting a degree of persistence to high or low levels of sentiment, notes the bank.
Regarding small and medium-sized enterprises (SMEs), business conditions for these firms fell further below average in the March quarter as slowing demand and declining profitability weighed.
Business confidence also remained negative in the March quarter among SMEs, according to
Conditions for SMEs have now clearly diverged from the resilience reported by larger firms in the bank's
Outside of
Availability of labour remained a significant constraint for one third of those surveyed, and price growth was broadly unchanged from the fourth quarter of 2023.
While still in negative territory overall, the survey shows SME business confidence rose in all industries except accommodation & food, with confidence still weakest in retail.
Overall, firms are still under pressure on costs, and with conditions continuing to ease for SMEs, the scope to pass through these costs to consumers is clearly increasingly constrained, notes Group Chief Economist
Providing some hope for the near-term, leading indicators firmed a little, with forward orders and capex rising, while capacity utilisation eased slightly.
Jarden's preferred stocks in the Furniture & Home category
Furniture & Home (F&H) companies have been more resilient in
The broker's
Jarden's F&H Footfall Traffic Index, which tracks the foot traffic of 15 specialist omnichannel F&H retailers, was weak in March and shows Neutral-rated Adairs ((ADH)) and Harvey Norman lost footfall share.
Adairs had the weakest foot traffic in March (experiencing an around -9% fall) with -2% less foot traffic at the company's bedding retailer (
Rated by Jarden as Buy and Overweight, respectively,
Furniture remains a store-driven category, explains Jarden, with scale omni players such as Nick Scali and Harvey Norman well placed to take share as industry consolidation continues, while
For 2024, Jarden sees a balance between increased discounting risk and cost-of-goods-sold (COGS) tailwinds for the F&H category. There is currently no significant evidence of irrational discounting, while decreases in COGS are likely to be passed through to consumers to stimulate demand and take share.
Jarden likes (in order of preference)
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