In early March, retail trade was reported to have been improving for a number of months. Now that most of the major retailers have reported recent sales and earnings, we can see where that retailing strength is coming from and which stocks may pull ahead of the pack.
Operating in the same environment, the companies that have the strongest balance sheets and the best improvements in earnings will probably be the best candidates for income and share price gains over the next one or two years. We are seeing consumer discretionary spending starting to revive, yet it may not be a straight line to the top.
These three companies have promising developments that could be catalysts for further earnings growth.
Fashion retailer Premier Investments Limited (ASX: PMV) scored big with its interim net profit up 12.1% to $52.1 million. Total groups sales were up 5% and like-for-like sales increased 4.4%.
Standout sales performance from its Peter Alexander brand and stationery store Smiggle showed it wasn't just women's fashion that could sell well. The company estimates that it could create around 200 new Smiggle stores in the UK over the next five years. The popular chain store could achieve $200 million in sales within five years.
In footwear, the operator of The Athlete's Foot in Australia, RCG Corporation Ltd (ASX: RCG), also set the bar high for other retailers as they announced a 9.2% increase in its interim net profit from continuing operations. An interim dividend of two cents per share fully franked was up 14.3% from the previous corresponding period.
Most of the increase in EBIT came from its branded footwear sales, which include such names as Merrel, CAT, Sperry and Saucony. The company is targeting 15% earnings growth for the full year FY2014.
For the adventurous investors at heart, outdoor equipment and apparel specialty retailer Kathmandu Holdings Ltd (ASX: KMD) achieved a 5.4% gain in same store sales and a 10.7% rise in its interim NPAT. The greatest percentage gain came from its Australian stores, where 56% of total sales were generated. Same store sales there were 6.6%, down from 9.6% in the previous corresponding period.
Its UK stores are still struggling to take root in a new market, but its online sales are growing steadily. It plans to grow the brand internationally via the internet, using the expertise and experience of its new chairman, David Kirk, who is also the chairman of New Zealand's biggest online classifieds website Trade Me Group Ltd (ASX: TME).
Foolish takeaway
These three companies show that it is possible to hit high-single or even double-digit earnings growth, despite the economy still not being in full swing. Usually, the companies that survive the best in weak markets take off with greater speed when consumers return to the stores in greater numbers.
Their popularity of brands and products are like votes of confidence and earnings will benefit as we move into the next year. If these companies aren't at least on your watchlists, then you may be missing out on good opportunities.
