This morning the footwear retailer behind the Hype DC and Athlete's Foot stores RCG Corporation Ltd (ASX: RCG) revealed its tracking to its own sales and profit growth forecasts for the six-month period ending December 31 2017.
In fact the group reported that EBITDA for the quarter ending September 30 2017 was up 6% on the prior corresponding quarter on an underlying basis, with like-for-like retail sales up 1%.
The group also flagged that the like-for-like sales trend has "improved since the end of September" with expectations that it can continue through to the end of 2017.
The same-store sales growth might not sound like much, but in the context of a genuinely tough retail environment that has seen profit forecast downgrades from multiple other retailers it's a decent result.
Recently retailers like Myer Holdings Ltd (ASX: MYR), Baby Bunting Group Group Ltd (ASX: BBN) and Specialty Fashion Group Ltd (ASX: SFH) have all pinned downgraded profit expectations on weak consumer confidence on the back of low wages growth and high household debt levels.
In total sales were up a decent 12% for over the prior corresponding quarter thanks partly to new store openings.
Online competition?
The group is also investing in its online offerings via click-and-collect offers or "industry-leading" three-hour delivery to be rolled out to "most population centres" over FY 2018.
In total online sales were up 79% during FY 2017 and are up 170% over the start of FY 2018.
This is all in response to the imminent launch of Amazon in Australia, although many of RCG's brands are exclusive to it or focused on the youth fashion market.
While Amazon will put pressure on RCG its exact impact remains unknown and the weak retail conditions are a far bigger problem for the group currently.
Should you buy?
Given management's impressive track record and its growth forecasts I would rate the stock a buy under 75 cents. That would place it on 10x trailing earnings with a bumper 8% yield plus the tax effective benefits of franking credits.
The yield adds to the potential for a market-beating investment opportunity with management intent on paying out 75%-80% of profits in dividends. Moreover, any hint that it will be able to deliver more than 6 cents per share in dividends over FY 2018 is likely to send the share price closer to $1 than 75 cents.
To my surprise I was able to pick up shares for 59.5 cents last July and expect the group will already have paid me back at least 12 cents per share in dividends by next August on top of some significant capital growth.
I would happily buy the stock again under 75 cents as it should still offer a yield over 8% and looks one of the best run retailers on the ASX that the market is currently pricing to go backwards. That's too pessimistic in my opinion given the end of 2017 might be the bottom of a tough retail cycle.
