As company earnings reports roll in, investors will see multiple examples of why it pays to be an optimist and to ignore apocalyptic forecasts. For much of late 2022 and 2023, the media was fixated on rising interest rates and the potential of a damaging recession. As a result, while some retailers had seen share prices recover strongly as the world emerged from the pandemic, the momentum reversed as increased costs and slowing sales emerged.

First level logic dictates that in a rising interest rate environment retail businesses face a multitude of challenges. Higher interest rates typically lead to increased borrowing costs for consumers, impacting their disposable income and reducing spending on non-essential items. Economic uncertainty and talk of a potential recession further deters consumer confidence, prompting cautious spending behaviours.  These cost of living pressures place additional financial strain on households.
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Despite these pressures, higher-end retail brands may be less affected, as their clientele often enjoys greater disposable income and may even benefit from higher interest rates. While Australia does not have the retail behemoths like Amazon (NASDAQ: AMZN), the following three ASX listed retail stocks have posted better-than-expected results and have seen their share price surge as a result.

Nick Scali Limited (ASX: NCK), the furniture retailer, released its 1H FY24 results, reporting a net profit after tax of $43.0 million, surpassing the guidance of $40-42 million set at the October 2023 Annual General Meeting (AGM).

The Group generated revenue of $226 million which fell 20% from the prior period with gross profit declining 29%. On a more positive note, written sales orders reached $212.7 million, up 1.1% from the Prior Corresponding Period (PCP), with flat Like For Like (LFL) orders. Q2 FY24 orders increased by 8.2%, driven by a robust November and December period on the back of Black Friday and Christmas sales. Online sales orders under the Nick Scali brand totalled $14.7 million, a 22.5% Year on Year (YoY) increase. Notably, the gross profit margin improved to 65.6%, up 3.6% from 1H FY23, reflecting operational efficiency. Operating expenses were $4.8 million lower YoY due to stringent cost controls.
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Cash generated from operating activities increased 15% to $66.7 million despite the drop in receipts from customers.
Nick Scali repaid $20 million of corporate debt following the acquisition of Plush, reducing the outstanding balance to $28 million. The company returned capital to shareholders via a fully franked interim dividend of 35 cents per share. The outlook, recent trading in January 2024 continued the positive momentum, with written sales orders up 3.6% YoY. Overall, Nick Scali’s better than expected financial performance, strategic expansions, and efficient cost management indicate resilience and potential for sustained growth in the competitive furniture retail sector.

Cettire Limited (ASX: CTT), the esteemed online luxury fashion retailer, has unveiled a formidable financial performance for H1-FY24.
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Boasting a remarkable 90% year-on-year increase in gross revenue, reaching an impressive $460.5 million, the company attributes this success to substantial growth in both order volume and average order value. Sales revenue reached $354.3 million, with an evident shift towards repeat customers accounting for 58% of gross revenues. This underscores heightened average spend per order and increased order frequency, reflecting positively on customer loyalty.
Strategic investments in paid acquisition, has significantly fueled rapid growth, resulting in an impressive 83% year-on-year increase in active customers. Notably, Cettire maintained operational profitability, achieving an Adjusted EBITDA of $26.1 million, equivalent to 7.4% of sales revenue. Operating cash flow demonstrated robust growth, increasing by 81% to $65 million, driven by a capital-light business model and favourable working capital dynamics.With an enviable cash balance of approximately $100 million and zero debt as of December 31, 2023, Cettire has strategically positioned itself for global growth opportunities. Looking ahead to H2-FY24, the company maintains a focused approach on maximising profitable revenue growth, self-funding initiatives, and further advancing customer-centric strategies, particularly in readiness for the Chinese market. January 2024 witnessed positive trading momentum, marked by an 80% YoY increase in gross revenue, reinforcing Cettire’s optimistic outlook for the remainder of the fiscal year.

JB Hi-Fi Ltd (ASX: JBH) released its first-half results on Monday, reflecting a challenging market environment.
The home consumer products retailer previously flagged a difficult upcoming period with the Group seeing a 2.2% decline in total sales to $5.16 billion. Earnings before interest and tax (EBIT) fell by 19.3% to $386.7 million, accompanied by a 19.9% decrease in net profit after tax (NPAT) to $264.3 million. Earnings per share mirrored this trend, down by 19.9% to 241.8 cps. The Board responded by declaring an interim dividend of $1.58 a reduction of 20%.
Clearly the market had low expectations going into the result, despite the financial decline shares rose 7.13% on the day and sat at all time highs. JB’s earnings are typically greater in the first half of the financial year due to heightened trading during Black Friday and the Christmas period.
Group CEO, Terry Smart said:“We are pleased with our performance as we cycled the elevated customer demand in the prior year. As expected, we saw the trading environment become more challenging, marked by heightened competitive activity and increased on-floor discounting. Our focus remained on maximising customer demand through delivering consistently high levels of customer service and driving best value for our customers.”

“In the short run, the market is a voting machine but in the long run, it is a weighing machine” – Benjamin Graham.
Reflecting on the journey of Nick Scali, Cettire, and JB Hi-Fi through the turbulence of market sentiments, these stories underscore the essence of strategic foresight in investing. Embodying Benjamin Graham’s philosophy, these narratives highlight the potential for discerning investors to see beyond momentary pessimisms to the enduring value of robust business models.These retail results reflect a mix of both positive and negative indicators for investors to consider. While the present financial figures reveal challenges, most are not as negative as forecasters were predicting just six months earlier. Long term investors appear to be looking beyond the immediate horizon, focusing on the anticipated potential for improved results in FY25 and FY26. The prospect of a potential reduction in interest rates adds a favourable dimension to the market outlook, presenting an opportunity for investors to capitalise on the potential for more favourable financial conditions.
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Staying rational amid pessimism and finding opportunities in chaos are essential, yet challenging, for navigating market ups and downs. This approach, while difficult, offers discerning investors the chance to uncover significant opportunities beyond the apparent turmoil.