Why the Specialty Fashion Group Ltd share price is soaring today

Credit: Newyorklegoboy

The shares of apparel retailer Specialty Fashion Group Ltd (ASX: SFH), which operates the Rivers, City Chic, Millers, and Autograph brands, are flying this morning following a fourth consecutive reporting period of comparable store sales growth of more than 5%.

Today Specialty Fashion Group reported comparable store sales growth of 5.7% with revenue coming in 5.2% higher year over year at $434.4 million for the first half of fiscal 2016. Although gross margin dropped 300 basis points due to the stronger US dollar meaning higher product costs, it still managed to increase the bottom line by 6.2% to $8.8 million.

On a per share basis, the company reported earnings of 4.6 cents, up from 3 cents in the same period last year. With analysts previously expecting full year earnings to land at 6.7 cents per share, the company looks like it could be well on the way to smashing the consensus estimate this year, especially considering that so far in the second half of the fiscal year the company is posting positive comparable store sales growth.

The importance of ecommerce for retailers cannot be understated. So with management stating that online sales grew by 58.9% to $39.1m during the period, it is very encouraging. Furthermore the company is expanding its City Chic offering overseas, and although no figures were given, management advised the results so far are positive with significant growth being reported.

The struggling Rivers brand has shown a lot of promise in the period, and the company expects it to return to profitability in 2017. This will prove to be a great boost to the bottom line, and I would expect earnings to accelerate once it does.

The retail industry can be a difficult one to be in. You only need to look at the struggles that Myer Holdings Ltd (ASX: MYR) and Kathmandu Holdings Ltd (ASX: KMD) have had in recent times to see how fortunes change quickly. But, with falling fuel prices, consumers have more disposable income to play with and retailers like Speciality Fashion Group are positioned to benefit.

With the shares up 25% today there is clearly a lot of optimism in the market for this company, and if it can expand its brand portfolio internationally and Rivers returns to profitability quickly, I would expect earnings to grow at an incredible pace. For this reason I feel it could be well worth keeping a close eye on.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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