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Here’s why Harvey Norman Holdings Limited and Kathmandu Holdings Ltd are taking the lead in retail

Retailers in general are still operating in uncertain economic conditions, with some companies seeing sturdy revenue gains and others waiting to enjoy relief. The Australian Bureau of Statistics (ABS) released its latest figures for March and the March quarter.

Like in many cyclical industries, the companies that make the strongest moves up usually are in the strongest consumer segments and may have better margins to propel their individual growth.

Household goods retailing saw the best trend estimate gains, while apparel and accessories as well as department stores were down.

Harvey Norman Holdings Limited (ASX: HVN), the furniture, household goods and electronics retailer reported a 5.2% increase in like-for-like sales for the nine months ending 31 March 2014 across the group.

In Australia, the like-for-like sales were up 3.4% for that period.

Its share price gained about 11% in the last year. If we can see more improvement in consumer sentiment and further growth in consumer spending, household goods sales should rise. The retailer’s share price should respond accordingly.

Specialty retailers

Investors are pleased with the growth Kathmandu Holdings Ltd (ASX: KMD) has shown in the first half. The outdoor equipment and apparel maker is bucking the slower growth trend of apparel and personal accessory sub-group.

Interim net profit was up 10.7% and margins grew by 1.2% on first-half FY2013.

It has 143 stores and is seeing great online sales growth. That is a high priority for the company to build the brand internationally through multi-channel marketing and sales. 4.7% of total revenue now comes through its websites.

In the past 12 months, its share price is up about 52%.

When investors look at retailers, two major indicators of growth are like-for-like sales and earnings margins.

Higher sales volumes can also cover weakening growth if stores have to discount heavily to keep the volumes up. Earnings margins will reveal that kind of change.

 

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

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