These are my 2 favourite retailer shares

The retail sector is brutal and it’s really hard to become the best. It’s quite easy for a competitor to come in and start selling a product, sometimes that new competitor can be a global behemoth like Amazon.

But, if you’re number one in the industry, margins are growing and sales are still growing then that’s a really good sign of a potential retail investment.

Here are my two favourite retailers:

Bapcor Ltd (ASX: BAP)

Bapcor is the leading auto parts business in Australia and New Zealand with its Burson and Autobarn chains. The company is well run and management do a good job of finding additional efficiency savings every year.

Burson Trade achieved same store sales growth of 3.4% in its result for the first half of FY18. The earnings before, interest, tax, depreciation and amortisation (EBITDA) margin increased to 13.9% in the December 2017 result compared to 13.6% in the FY17 report.

Bapcor currently has 163 stores but it aims to increase this total to 200 over the next five years.

Bapcor is trading at around 24x FY17’s earnings.

Greencross Limited (ASX: GXL)

Greencross is Australia’s leading pet business. It obviously runs the Greencross vet chain but it also owns the Petbarn retail chain.

In the half-year result to 31 December 2017 Petbarn achieved like-for-like growth of 4% with overall revenue growth of 6%. Foot traffic increased by 2% across the Petbarn network. There was also a 92% increase in Australian online sales, driven by click and collect.

There could be more growth to come as Greencross co-locates vets inside Petbarns. Only 18% of Petbarns have an in-store clinic at the moment but there’s a target to have up to 60%.

Greencross is trading at around 12x FY19’s estimated earnings.

Foolish takeaway

I think both businesses will easily beat the ASX market over the next few years. In the next year or two I expect Bapcor will provide the bigger returns but I think over the next 10 years Greencross will be the better buy because its co-location strategy will have been completed.

Want another top retail idea? One of these top stocks could be perfect.

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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 Scott Phillips.

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