Why I think these are still 2 of the best retail shares

Reporting season is nearly over and it’s clear to see that quite a few retail shares are doing it tough. But, for me, there were a few retailer reports that really showed off the quality of the businesses.

Below are two of my favourite retail shares:

Greencross Limited (ASX: GXL)

Greencross reported that, compared to the 26-week period last year, revenue grew by 9%, gross profit increased by 10%, earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 9% and earnings per share increased by 7%.

Group life for like sales increased by 4.5%. The co-location strategy of putting a vet inside a Petbarn is essential for growth. Indeed, like for like sales at the integrated stores increased by 7.5% and there was a 34% increase in cross shoppers.

The key Australian retail segment grew revenue by 6% and like for like sales grew by 4% in a strong Christmas trading period with a 2% rise of foot traffic.

I believe that Greencross has the right idea to withstand online competitors as the co-located vet gives people a reason to go to the store, plus Greencross’ online sales are growing strongly as well.

Greencross is currently trading at 16x FY18’s estimated earnings.

Bapcor Ltd (ASX: BAP)

Bapcor also reported an impressive result. Revenue, profit margins and earnings all increased.

The main earnings segment, Burson, grew same store sales by 3.4% and the number of stores to 163. Management have a long-term target of 200 Bursons, so there is still plenty of room to grow. Burson was also able to increase its EBITDA margin to 13.9% from 13.6%.

Bapcor is working on ‘significant workstreams’ to increase its Own Brand ratio to 30% from 22%.

Management have guided that continuing net profit after tax (NPAT) is expected to grow by 30% in the current year and it could keep growing at a good pace thanks to profit optimisation and increasing store numbers.

Foolish takeaway

I was very impressed by both results and I thought it showed both are exciting prospects over the next few years. If I had to pick one to hold for the next decade it would be Greencross due to the uncertainty of the change to electric vehicles for Bapcor, but both should beat the market over the next two years.

I also believe that these top stocks will also beat the market at the current prices.

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Motley Fool contributor Tristan Harrison owns shares of Bapcor and Greencross Limited. The Motley Fool Australia owns shares of and has recommended Bapcor and Greencross Limited. 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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