Macquarie says these two ASX retail stocks are good buying at current levels

With further interest rate cuts almost certainly off the table, picking winners in the ASX retail sector might have become just that little bit much harder.

The team at Macquarie have done a deep dive into the sector, and believe they've come up with some solid picks which will generate impressive share price returns over the next 12 months.

Growth stories to dominate

Given the challenges the sector is facing, Macquarie has advised that rather than looking for value on an earnings basis, investors should look for a strong growth thematic from companies.

As they wrote in a note to clients:

In our view, investors looking to retain exposure to the consumer are best placed to focus on stocks with share growth stories and brand strength (i.e. quality) rather than value, given upcoming macro volatility into 2H26 (driven by potential interest rate increases).

In household retail, Macquarie's least preferred sector, share prices in general have been under pressure, particularly for Temple & Webster Ltd (ASX: TPW) which was sold off heavily after a trading update recently.

Another company which has seen its share price decline has been Nick Scali Ltd (ASX: NCK) however the Macquarie team are bullish on the outlook for Nick Scali shares, saying that while potential rate increases will be a negative, "Nick Scali foot traffic data tracking gives us confidence in the trading outlook''.

Macquarie has an outperform rating on Nick Scali shares and a price target of $28.20 versus the current price of $21.49, indicating potential upside of 31.2%.

Coffee a growth market

The Macquarie team is even more bullish on the prospects for Breville Group Ltd (ASX: BRG) shares, with a price target of $39.20 versus the current price of $29.64. If that were to be achieved it would be a 32.2% gain.

Macquarie says consumer data indicates that discretionary retail spend was strong heading into the sales events such as Black Friday, and they are confident that companies such as Breville represent value at current prices.

We remain confident in the health of discretionary consumption after Black November, and into Christmas, implying low macroeconomic risks to the small-cap discretionary retail stocks under our coverage. Our analysis … gives us confidence in the health of the underlying consumer for discretionary retailers, heading into 2H26. Given consumer discretionary share prices have all declined YTD FY26 so far (except Baby Bunting (ASX: BBN)), we think this represents a valuation opportunity.  

Macquarie said Breville was among its top picks in the discretionary sector, with structural growth in the coffee market and new products and market expansion to drive growth.

In the medium to long term, the expansion of coffee across all key geographic areas continues to be a driver for Breville. We expect revenue to be driven from coffee, as the market continues to go through coffee 'premiumisation' and structural growth driven by higher penetration across North America, Europe and APAC.

The post Macquarie says these two ASX retail stocks are good buying at current levels appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group. The Motley Fool Australia has recommended Nick Scali and Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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