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This retail share just issued a profit upgrade despite the Amazon onslaught

The share price of McPherson’s Ltd (ASX: MCP) shot up to a three-month high in early trade after the household and personal goods distributor issued a profit upgrade and upbeat outlook on the back of a strong Christmas trading period.

Flat is the new up for McPherson’s with its stock jumping 7.1% at $1.28 as management tipped an interim underlying pre-tax profit of $11 million, which is the same as the same period last year.

The news gave investors a reason to cheer as management had been forecasting a profit drop of 10% to 15% and they can thank Chinese consumers for the better-than-expected outcome.

Management credited improved trading conditions over Christmas and strong local and international demand for its Dr LeWinn’s and A’kin personal care products for the good result. It seems Chinese consumers have developed a taste for these lines.

The result includes the earnings contribution from its home appliance division, a business that the company is on track to sell at the end of this month.

The sale will generate around $28 million in net proceeds but shareholders won’t see any of this as the cash from the divestment will be used redeem its corporate bonds with management targeting to cut net debt to $5 million at the end of June this year.

McPherson’s is coming through a challenging period as it undertakes a restructure, but its efforts seem to be paying off sooner than expected as management is bullish about the second half of FY18.

The company is expecting its underlying pre-tax profit for the full year to be ahead of FY17 thanks to a number of growth initiatives it is undertaking and expectations that buoyant operating conditions will be sustained.

McPherson’s will have more to say when it officially releases its half year result on 21 February but it isn’t the only retail related company that is feeling bullish.

Women’s apparel retailer Noni B Limited (ASX: NBL) also issued a profit upgrade recently and the market is expecting good profit results from electronics retailers JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).

But it’s really a tale of two cities with a growing divide between the good and the ugly in the sector that has been buffeted by a structural upheaval led by online shopping giant Amazon.com, rising competitive pressure, weak wage growth and falling prices for many goods.

As I wrote yesterday, the weak ones in the market could soon be swallowed up or risk going the way of the Dodo.

But the experts at the Motley Fool have uncovered a sector that is better placed than most to deliver solid returns in 2018 and beyond.

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Motley Fool contributor Brendon Lau has no position in any of the 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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