Shares in N Brown Group (LSE: BWNG) has have tumbled following another profit warning today, while Boohoo.com (LSE: BOO) has climbed after a solid trading update.
In this article, I look ask whether either company is a buy or whether investors looking for retail exposure are better off with high-performing high street chain NEXT (LSE: NXT).
No tears at Boohoo
Following Januarys 40% share price crash, I believe Boohoo.com has started to look like one of the best online retailing plays available to UK investors.
The own-brand retailer has solid profit margins, net cash of 54m, and is delivering sustainable growth: todays year-end update showed a 31% increase in sales over the last year, based on constant exchange rates.
Boohoo also said that gross profit margins had remained stable last year, at 61%. This is important, as it shows that the firms sales growth isnt being driven by price cutting.
Boohoo shares are up by 6% at the time of writing, and with a 2016 forecast P/E of 23, I think they remain reasonably priced.
N Brown down (again)
It wasnt such a positive story N Brown, which owns brands including Simply Be, Jacamo and Figleaves. The firm issued its second profit warning in six months today, sending its shares down by 14% during the first hour of trading.
Group sales were flat overall in 2014/15, but profit guidance has been cut again: in October, N Brown cut pre-tax profit guidance to between 88m and 92m. Today, the firm said that the true figure will be slightly below 88m.
N Brown is in the middle of a programme of improvements aimed at strengthening the groups online offerings, which now account for 62% of sales. However, todays update revealed that fourth quarter sales growth had been driven by price cutting suggesting to me that Browns attractive 12% operating margin could be under threat.
Better buy Next?
Investors should perhaps remember the old adage that profit warnings come in threes: in my view, N Brown doesnt yet look cheap enough to be a bargain, although the 2016 forecast P/E of 12.6 is starting to look interesting.
However, I think Id rather own shares in high street stalwart Next, which boasts a 20% operating margin, an identical 3.6% dividend yield, and a long-running track record of earnings growth and superb financial guidance.
Overall, I rate Boohoo and Next as buys in todays market, but not N Brown.
However, I believe there is a fourth retail share with the potential to outperform all three of these stocks.
The company in question has proven profitability and is in the early stages of an aggressive online expansion.
The Motley Fool’s analysts believe this could lead to a threefold increase in sales over the next five years — and reckon that the current share price seriously undervalues this home-grown business.
The Fool’s experts have put some of their findings into a brand-new free report: “3 Hidden Factors Behind This Daring E-commerce Play“.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.