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Country Road doubles profit but should investors buy in?

Clothing retailer Country Road (ASX: CTY) is on trend in the first half of the financial year. The company has reported interim profits of $22.1 million, double 2011 levels, while overall sales grew by 50% to $334.1 million and and comparable store sales grew by 10.7%. What’s behind Country Road’s great success?

Witchery Group acquisition paying off

This past October, Country Road completed its $181 million acquisition of Witchery Group, which included fashion retailer Witchery and accessories designer Mimco.

Country Road Chairman Ian Moir discussed the goal of this acquisition at the last annual general meeting, saying that it would position the company as one of Australia’s largest and most successful specialty retailers.

“Australia’s apparel market is currently at a cyclical low, providing the opportunity for Country Road to consolidate its position ahead of the expected economic recovery,” said Moir. “Going forward, we will focus on the successful integration of the Witchery Group, delivery of synergy benefits and profitable growth of the combined businesses.”

It’s a strategy that looks to be playing out now just as planned.

Outlook for the rest of year

Despite these impressive interim results, Chairman Moir says his outlook for the remainder of the year is cautious, owing to the competitive nature of fashion retail and consumer confidence being affected by lingering economic uncertainty.

But Moir’s fears may be more hangover than premonition. Evidence of a positive trading environment, at least for mid- and up-market fashion retailers, is growing. Competitors like David Jones (ASX: DJS) and Specialty Fashion Group (ASX: SFH), for instance, have also recently reported good results for their fashion retail businesses. However, some companies are offering more mixed messages. Women’s retailer Noni B (ASX: NBL), for instance, struggled over the same period with flat sales and falling profits.

The Foolish bottom line

Fashion is a famously fickle business and despite these recent strong results from Country Road and some other fashion retailers, many investors will feel more secure in more diversified investments.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

 

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