Retail investors had plenty to get their teeth into this morning, with trading from Debenhams (LSE: DEB), WH Smith (LSE: SMWH) and Mothercare (LSE: MTC).
In this article I’ll take a look at the news, and explain why I’d be happy to buy shares in some — but not all — of these household names. I’ll also look at why I believe NEXT (LSE: NXT) could still be a superior buy.
Debenhams
Shares in department store chain Debenhams climbed 5%, after the firm said that total sales had risen by 2.3% to £1.6bn during the first half of its current financial year, while earnings per share had climbed to 5.9p.
Debenhams’ 1p interim dividend was maintained, and the firm reported a meaningful reduction in net debt, which fell from £361.5m to £297.3m.
WH Smith
WH Smith shares eased back from record highs this morning, despite a 4% rise in group pre-tax profits, and a 10% rise in earnings per share for the six months to the end of February.
The interim dividend was increased by 12%, to 12.1p, but sales are still falling at the firm’s high street stores, where like-for-like sales fell by 4% during the first half of the financial year.
Mothercare
Fourth-quarter sales rose by 4.1% at Mothercare, thanks mainly to a long-awaited turnaround in UK sales, which rose by 1.5%, a gain powered mainly by a 31.8% surge in online sales.
Mothercare shares rose by 5% this morning, meaning that shareholders who bought into last October’s lows have seen a 37% gain in just six months.
Today’s best buy?
Here’s how these three retailers, plus Next, compare after today’s moves:
| Â |
Debenhams |
WH Smith |
Mothercare |
Next |
|
2015 forecast P/E |
11.6 |
16.3 |
31.5 |
17.0 |
|
2015 prospective yield |
4.1% |
2.8% |
0% |
4.0% |
|
Operating margin |
5.8% |
10.3% |
2.4% |
20.6% |
Debenhams continues to look cheap after today’s gains, and offers an attractive yield.
WH Smith, despite falling like-for-like sales, has a strong record of cost-cutting and profit growth and an attractive 10.3% operating margin, which highlights the extra profitability of its travel business.
Next offers an attractive yield and industry-leading operating margins, and has a strong track record returning surplus cash to shareholders through special dividends and share buybacks.
In this company, I reckon Mothercare looks outclassed: the store’s earnings per share would have to double for the current share price to look appealing, but earnings are only expected to rise by around 30% in 2016.
There’s also no dividend, and if I were a Mothercare shareholder, I would take profits and sell after today’s gains.