The retail reporting flurry continued in earnest this morningas we received updates fromlifestyle brands Ted Baker (LSE: TED) and Joules (LSE: JOUL).
For the eight weeks from mid-November to early January, retail sales at the formerrose by 17.9% (10.6% in constant currency) compared with the same period last year. Online sales were even more impressive, soaring 35% (31% in constant currency), clearly indicating Ted Bakerhas succeeded in offering a decent e-commerce platform to shoppers something not all retailers can boast.
Given the fairly dire figures released by Next a week ago, I think existing investors should feel reassured by these numbers andmanagements beliefthat Ted Bakers full-year results will be in line with expectations despite the tough trading backdrop. So, with shares up 3% in early trading, should those not already invested be taking a closer look?
Thanks to the companys ongoing efforts at international expansion (with openings in China, Bahrain and Indonesia over the reporting period), I believe theundeniably punchyprice-to-earnings (P/E) ratio of 24 for 2017 can be justified. Assuming we dont have another Brexit-style shock in the near future (which, admittedly, cant be discounted), Im confident these plans and the companys online should continue to drive revenue and profits.
While this might not be sufficient to make the shares a must-buy, lets not forget thatthis is also a business with an excellent track record of strong returns on capital, decent operating margins, consistent earnings per share growth and regular double-digit hikes to its dividend. All of these things are indicative of a high quality business soI think Ted Baker could serve investors well in the medium term.
Giving it some welly
Like its lifestyle peer, market newcomerJoules delivered a strong performance over Christmas. Total retail sales rose 22.8% with gross margins marginally ahead of the previous year. With its shares rising by over 2% this morning, it appears the market is satisfied with this update.
According to CEO Colin Porter, todays positive news reflects the growing awareness and strength of the Joules brand. Im inclined to agree. The companys fresh, colourful spin on traditional garmentsand thoroughly British identityappear to be striking a chord with consumers tired of shopping at Debenhams or M&S. This looks set to continue into 2017, particularly after the company revealed in Decemberthat it had seen strong growth in its wholesale order book for its forthcoming spring/summer range.
Are the shares worth buying? That depends on your investing strategy. For income-hunters, Joules falls short with a dividend yield of under 1% duefor 2017. You can get much larger payouts from most FTSE 100 sharesor a simple tracker fund.
For others, shares in Joules may be wortha look. Sure, a P/E of almost 26 for this year looks expensive but, like Ted Baker, this valuation takes into account plans to grow theglobal footprintby targeting new markets likethe US and Germany. Given that international sales currently account for only a small proportion of revenue, a successful rollout in these countries could see the share price continue its upward trajectory. Hopefully, the company will reveal more on its plans for this year and beyond when interim results are announced at the end of the month.
Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Ted Baker plc. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.