It’s no secret that the UK’s retailers have had a torrid time recently, with the Brexit vote and resulting uncertainty helping to put a dent in consumer confidence. Clothing retailers in particular have had to endure higher import costs as a result of the fall in the value of sterling, which in turn has weighed on profits.
But I don’t think that all clothing retailers should be tarred with the same brush. Granted, retailers are operating in a very challenging trading environment, but it’s our job as stock pickers to separate the wheat from the chaff. I think there are quality companies out there that can weather the storm and continue to grow despite the current challenges facing the industry as a whole.
Global lifestyle brand
For instance, in its most recent trading update, global lifestyle brand Ted Baker (LSE: TED) announced that group revenue in the three months prior to the Christmas trading period rose by 7.3% (8% on a constant currency basis), compared to the same period last year. E-commerce figures in particular were very encouraging indeed, with an impressive 30.5% surge in sales compared to the prior year, representing almost a fifth of total retail sales.
Retail store sales as a whole increased by 5.1% on a constant currency basis, with average space rising 5.6% to 404,864 sq ft and expansion continuing with the opening of a new store in Oxford, plus further concessions in premium department stores in Canada, Germany and the UK. The group’s wholesale operation performed even better, with sales increasing 14.2% (15.4% at constant currency), reflecting strong performances from both its UK and North American businesses.
Solid business model
While the outcome for the full year will no doubt be heavily dependent on results for the all-important Christmas trading period, Ted Baker has proved once again that growth can still be achieved during challenging times when underpinned by a solid business model and an unwavering focus on product quality and design.
With the shares trading on a lower rating than in previous years, I consider Ted Baker a strong buy at 22 times current year earnings.
Growing customer base
Another fashion retailer that seems to have shrugged of the post-referendum blues is Joules Group (LSE: JOUL). Perhaps unfamiliar to those less fashion conscious individuals like myself, AIM-listed Joules is a founder-led premium British lifestyle brand, and is growing fast just like Ted Baker, although it is still in its infancy when compared to its larger peer.
In a pre-close trading update for the first half of its 2018 financial year, the Leicestershire-based retailer reported an 18.2% increase in revenue to £96.2m, reflecting the brand’s expansion, growing customer base (which now stands at more than 1m active customers”, and the strong performance of both new and core collections.
This is a business that appears to have found a strong niche and is defying an unforgiving backdrop in the fashion retail sector. Its move this year into activewear should help it tap into an area it hasn’t yet exploited.
The shares have suffered a slump since I last looked at the company back in June, and now look much better value trading on a price-to-earnings ratio of 25 for FY2018.