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2 specialty retailers to add to your watchlist

The signs of improving retail trade can be seen in the half-year results of some retailing companies. Similarly, over the five months ending in January, retail turnover trend estimates have increased 0.7% monthly, according to The Australian Bureau of Statistics.

It’s not at a boom level yet, but here are two specialty retailers that are pushing ahead with business. They are working with successful brands and expanding into new markets overseas.

Premier Investments Limited (ASX: PMV) has been riding success with its Smiggle brand stationery stores. Its children-focused product range has been growing well in Australia with 122 stores. The next big step is in growing the brand in the UK, where it plans to have 11 stores within this financial year and about 25 by Christmas.

Many of the company’s brands are fashion related, such as Just Jeans, Jay Jays, Portmans and Jacqui E, so Smiggle is in a different category. This specialty retail business plans to have about 200 stores in the UK within five years.

You may have noticed the shop in your local shopping mall, with its bold colours and patterns that are attractive to children. Price points are reasonable, so kids can load up on school supplies, and strong average sales per visit keep revenue up.

OrotonGroup Limited (ASX: ORL), the fashion handbag and accessory retailer, has taken a hit to earnings as it transitions from its relationship with Ralph Lauren, which ended in FY2013, to new prospects. It is taking on two new directions with US brands Gap and Brooks Brothers.

Taking over management of the three existing GAP stores in Australia, it plans to open two new stores in FY2015. About 20 stores are planned for the 10-year franchise agreement. Brooks Brothers, a well-established men’s clothing brand, will have about 14 new stores within calendar year 2014.

The company also has stores in several Asian cities like Hong Kong, Kuala Lumpur and Singapore.

Alongside this store expansion, revenue for the six months ending 31 December was up 17% to $62.7 million. However, half-year net profit shrunk 24% to $5.1 million due to discounting, softer markets, and the increased cost of doing business from new store start-ups.

The two new brands may not generate the same high profit margins that Ralph Lauren did. However, the company expects that higher sales volumes can offset the reduction, and eventually fill in the earnings gap left by Ralph Laurens’ exit.

Foolish takeaway

Fashion can be fleeting, but riding new trends and linking up with famous brands is the best way to stay ahead. Investors will know that in the fast-paced retail markets, profit margins can be less than ideal.

Watch for changes in like-for-like sales, and check whether inventories are rising too quickly. That can be a sign of slowing sales and management not effectively dealing with them.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

 

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