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Is profit for discretionary ASX shares going to slump in 2021?

It has been a very interesting reporting season for plenty of ASX shares so far.

Some ASX shares that have seen restrictions in their trading have obviously seen huge drops in profit.

For example, Qantas Airways Limited (ASX: QAN) generated $124 million of underlying profit before tax in FY20, which was down 91%. It made $771 million of underlying profit before tax in the first half of FY20.

Another heavily-hit business was Crown Resorts Ltd (ASX: CWN), net profit after tax of $81.9 million was down 79.7%.

But what about the ASX discretionary stores that are going well?

There are a number of ASX shares that have reported very well in during this reporting season.

Premier Investments Limited (ASX: PMV) is now expecting FY20 second half EBIT to be between $58.7 million to $59.7 million. This would be growth of 9.7% to 11.7%. FY20 EBIT is now expected to be between $184.8 million and $185.8 million – up 10.5% and 11%.

Nick Scali Limited (ASX: NCK) FY20 net profit after tax (NPAT) was flat at $42.1 million, with an increased dividend of 12.5%.

Adairs Ltd (ASX: ADH) FY20 profit underlying EBIT rose by 39.7% to $60.7 million. Statutory net profit increased by 19% to $35.3 million.

The above businesses benefited in two different ways. They are being supported by the government with jobkeeper payments for their staff and their overall customer base is probably being helped by government stimulus as well.

Other ASX businesses like Wesfarmers Ltd (ASX: WES) have seen heightened buying at Bunnings and Officeworks for DIY projects and home office items in FY20. JB Hi-Fi Limited (ASX: JBH) has seen a lot of spending too with a large jump in underlying profit in FY20.

Government stimulus was introduced to support the economy and it certainly seems to have helped. The federal government recently extended the stimulus to March 2021 next year, but the payments are going to reduce.

There could be a danger next year that if the economy hasn’t rebounded strongly by itself by March 2021, then the above ASX retailers that have seen elevated buying may see a reversal of the current growth. A lot of economic hopes hinge on the creation of a safe and effective vaccine.

What to invest in?

Perhaps some online ASX share retailers like Temple & Webster Group Ltd (ASX: TPW) and Kogan.com Ltd (ASX: KGN) will be able to keep growing regardless of what happens next with COVID-19 because of their ecommerce models. However, these two names are probably trading with the highest price/earnings ratios.

The best strategy for buying ASX shares right now could be to go for ASX growth shares that could keep delivering whether the economic and restrictions lift or not. Two names I think could do well in FY21 are Pushpay Holdings Ltd (ASX: PPH) and Bubs Australia Ltd (ASX: BUB).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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