I believe the retail industry is one of the trickiest areas of the market to invest in. The ever-changing preferences of consumers and the threat of international competition means today's retail star can become tomorrow's retail flop at the drop of a hat.
You only need to look at the fortunes of Woolworths Limited (ASX: WOW) and Reject Shop Ltd (ASX: TRS) to see this. The shares of both companies have been punished in the last few years as a new entrant to the market caused margins to shrink and profits to drop.
Whilst these two retailers may one day find their feet and be investable again, for now I feel they are best avoided.
But three retailers which are at the top of their game and could be a great investment today are as follows:
Baby Bunting Group Ltd (ASX: BBN)
This baby products retailer has had a stunning FY 2016 culminating in a 55.8% jump in net profit after tax. The good news is that I expect that FY 2017 could be equally strong. At its annual general meeting in November the company reported a 10% lift in comparable store sales for the first four months of the new financial year. Whilst its shares may be changing hands at a lofty 33x trailing earnings, I believe its growth potential justifies the premium.
MotorCycle Holdings Ltd (ASX: MTO)
MotorCycle Holdings owns and operates the largest motorcycle dealership network in Australia. Thanks partly to a solid rise in motorcycle rider numbers, the company smashed its prospectus forecasts in FY 2016 when it delivered annual net profit after tax growth of 74%. If motorcycle ridership continues to rise as management expects, then MotorCycle Holdings could prove to be a great investment.
Premier Investments Limited (ASX: PMV)
The owner and operator of brands including Just Jeans, Dotti, Peter Alexander, Portmans, and Smiggle has grown its bottom line by an average of 15% per annum over the last five years. Playing a key role in this growth has been the Smiggle and Peter Alexander brands. With the Smiggle brand growing its network internationally at an explosive rate, I expect its strong bottom line growth to continue for a number of years to come.
