3 retail shares that could deliver your portfolio capital gains

Credit: Sergiu Bacioiu

There is no doubt that the internet has had a game-changing impact on the way we shop.

The convenience of shopping from your living room or on your smartphone is hard to beat especially when you consider most stores now offer free (or very cheap) shipping and returns.

Investors have already seen the effect the internet has had on companies that have been too slow to embrace change with one of the most high profile casualties being Myer Holdings Ltd (ASX: MYR).

A number of other retail companies, however, have continued to prosper either by embracing the opportunities online shopping presents or by having business models that are largely unaffected by online competitors.

Three retail shares that I think can continue to prosper and deliver good returns for investors include:

Nick Scali Limited (ASX: NCK)

Like many other importers, the furniture retailer was expected to struggle under the weight of the falling Australian dollar. This hasn’t been the case for Nick Scali and the company has, in fact, been successful in maintaining its gross profit margins at around 60%.

On top of this, the company recently upgraded its full year profit guidance on the back of stronger-than-expected sales and expects to deliver FY16 net profit after tax (NPAT) of between $24 million – $26 million.

I think the furniture retailer will be able to withstand online competitors for one simple reason – people who will spend thousands of dollars on a luxury lounge or on an expensive dining table will want to physically see and touch the item before purchasing.

Vita Group Limited (ASX: VTG)

Vita Group has been one of the top-performing retail stocks over the past five years with its shares rising a whopping 1,516%.

The company manages and operates Telstra Corporation Ltd’s (ASX: TLS) retail and business centres and has done a great job over recent years of closing down poorly performing brands and stores. This has resulted in a sharp fall in costs and a sharp increase in profits.

Vita Group has also benefited greatly from the introduction of new devices such as smartphones and tablets and this is only expected to increase over the next few years.

As a result, I think Vita Group is definitely a stock investors should consider especially since the shares still trade on a reasonable valuation.

Greencross Limited (ASX: GXL)

Although Greencross is not considered a pure retailer, I think its strategy of co-locating its veterinary clinics inside, or next to, its Petbarn and City Farmers retail stores gives it a huge advantage.

As highlighted in the slide below, ‘cross-shoppers’ tend to spend significantly more under this business model than in standalone stores.

Source: Company Presentation

Source: Company Presentation

The veterinary sector has some excellent long term tailwinds and as the clear market leader, I think Greencross is well placed to capitalise on these opportunities.

The shares have come back to more attractive levels after it became clear private equity would no longer pursue a takeover and now trade on a forward price-to-earnings ratio of around 18.

If none of these retail businesses are quite what you are looking for, then you might want to consider these blue chip shares instead.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. 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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