With political uncertainty dictating how the markets have moved over the past few weeks, it feels a little redundantto scrutinise trading updates from UK companies.
As every Fool knows however, investing is about buying slices of great businesses and holding them for years, notobsessing over short-term share price moves or (whisper it) trying to time the market.So,lets look at the latestfiguresfrom two of the UKs mostsuccessful fashion retailers: Burberry (LSE: BRBY) and ASOS (LSE: ASC).
Flat sales
OnMonday, Burberry saidCEO Christopher Bailey would next year becomepresident with his former position being filled by Marco Gobbetti. While comingon the same day that share prices of most FTSE 100 shares rocketed upwards, a leap ofover 4% wont have escaped the formersnotice.
Then again, Mr Bailey musthave seen this coming. Before Monday, Burberrys shares had slumped by 22% in the past 12 months suggesting that, in addition to concerns over slowing global growth, investors were increasingly worriedthat his dual roleof CEO and Chief Creative Officer wasnt benefitting the company.
Todays trading update may do little to assuagethese concerns. Sales revenues were flat at 423m. On a like-for-like basis, they actually fell by 3%due to a challenging external environment.
Having said this, Burberrys shares areup3.7% in early trading, suggesting investors wereexpecting the news to be a lot worse. They now trade on a not-unreasonable rolling price-to-earnings (P/E) ratio of 17 and offer a well-covered yield of just over 3%.
Reassuringly expensive?
At the oppositeend of the market, online giant ASOSs trading update yesterday showed UK sales up28% andinternational scales up 31% in the four months to 30June. Thecompanynow expects full year sales growth at the upper end of the 20-25% range.
Now for the bad news.ASOSs growth star status means it remains on an astronomical valuation (a rolling P/E of almost 60, according to Stockopedia). The shares have also had a decent run of late, given that they went as low as 2,595p back in February (now 4,483p). Finally, although the sales growth looks impressive, a quick scan of the companysprofit levels shows that these havebarely budged in the last couple of years as a result of increased competition and the need tocut prices. Is the ASOS bubble about to burst?
Global reach
Trying to compare ASOSwith Burberryisnt entirely rational since the formercaters to trend-and-price-focused 20-somethingswhile the latteroffers luxurywith price tags few20-somethings can afford. Nevertheless, one thing both companies are likely to share is anability to withstand the fallout from the UKs vote to leave the EU.
The sharp rise in international sales growth should protect ASOS from too much Brexit pain. Indeed, international sales now account for 59% of itsbusiness. Burberry is also a likely beneficiary as it ships a large proportion of its productsabroad after being manufactured in the UK. A weaker pound is therefore good news for the 5.4bn cap.
That said, a slowdown in global growth could hit both share prices but particularly Burberrys as consumers cut back on luxury items. While both companieshave performed extremely well over the last few years, risk-averseinvestors may wish to look for less cyclical stocks.
Looking for growth?
Ultimately, it looks like ASOS and Burberry should emerge from Brexit relatively unscathed.That said, it must always be remembered that fashion retailing is a hyper-competitive industry and all retailers can be affected by a slowdown in global growth.
If buying shares in ASOS or Burberry doesn’t appeal, you may be interested in learning more about another investment opportunity identified by the experts at the Motley Fool. Details of this top growth share can be found in a special FREE report.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Burberry. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
