Thanks to a string of positive trading updates in 2015, shares in retail giants JD Sports (LSE: JD), Supergroup (LSE: SGP) and Ted Baker (LSE: TED) have all surged skywards in the year to date.
Tracksuit and trainer emporium JD Sports has seen its stock value almost double since the start of the year, and with good reason — the company’s latest update in September showed revenues sprint by more than a fifth during February-July, a result that powered pre-tax profit 82% higher to £46.6m.
Meanwhile, demand for the ‘street chic’ clothing lines of designers Supergroup and Ted Baker also continues to rocket. Supergroup saw retail revenues leap 30.9% during May-October, while its high-end rival enjoyed an 18.1% retail sales bounce in the three months to mid-November.
Expansions to electrify earnings growth
Undoubtedly all three companies are benefitting from robust trading conditions in their core UK markets. A backdrop of rising wages, falling unemployment, and toppling grocery and fuel bills is playing into the hands of the retail sector, as illustrated by latest Office of National Statistics figures — total sales volumes increased by a steady 0.9% in the three months to October, the organisation announced last week.
But all three retailers are also aggressively expanding their international footprint, through store rollouts and critically by boosting their online presence in foreign climes, in order to latch onto improving economic trends elsewhere.
JD Sports added 27 European outlets between February and July, a decision that helped power sales from mainland Europe 29% higher, to £176m. The retailer also made its first foray into Belgium during the period, and opened its latest flagship store in Amsterdam just last month.
And both Supergroup and Ted Baker and revving up their expansion schemes further afield, particularly in emerging markets where surging wealth levels promise to deliver stunning long-term revenues expansion.
Supergroup — which operates across 51 countries — chalked up 11 net new overseas store openings in the first half of its fiscal year, and in July announced the establishment of a joint venture in China. It also acquired distribution rights to Superdry brand in the US earlier this year.
Ted Baker also remains locked on a breakneck expansion programme, and opened new outlets in Amsterdam, Hawaii, Malibu and Toronto during the most recent quarter, as well as concessions in premium department stores in Germany, Ireland, Spain, North America and South Korea. And critically Ted Baker has seen margins remain robust despite fears of economic cooling in Asia.
So what does the City think?
Well, the Square Mile’s army of number crunchers do not expect earnings growth at the three clothing giants to halt any time soon. But can the businesses be considered a ‘buy’ at current share prices?
Over at JD Sports, earnings in the 12 months to January 2016 are expected to rattle 25% higher, resulting in a P/E rating of 19.3 times. But this value recedes to 17.7 times for 2017 amid expectations of an extra 8% earnings advance.
Supergroup deals on a conventionally-high multiple of 23.6 times, even though earnings are predicted to bump 14% higher in the year to April 2016. And a further 17% rise pencilled in for 2017 pushes this to 20.3 times.
Ted Baker is the most expensive of the lot and, despite forecasts of a 20% bottom-line boost in the year to January 2016, still changes hands on an earnings multiple of 35.9 times. And this figure remains ‘conventionally high’ — in other words. above the benchmark of 15 times that is generally considered attractive value — for next year, a predicted 15% earnings rise resulting in a ratio of 30.6 times.
But high multiples often accompany stocks with stunning growth outlooks, particularly those with brilliant track records like the three retailers mentioned. And as JD Sports, Supergroup and Ted Baker steadily expand their global wingspan — not to mention e-commerce propositions — I fully expect their respective share prices to continue surging along with earnings.