There are a few ASX retail shares that are delivering strong growth thanks to their online operations and these stocks could be worth looking at.
Online sales are helping some businesses deliver stronger growth in this new operating environment.
COVID-19 has caused some significant difficulties for some areas of the retail world – just look at Vicinity Centres (ASX: VCX) and Scentre Group (ASX: SCG).
These two retail ASX shares could still be worth watching with more growth potentially to come:
Adairs Ltd (ASX: ADH)
Adairs is one of the country's leaders in the retailing of home furnishings and home decoration products. It operates both Adairs and Mocka and sells quality in-house designed product direct to customers in Australia and New Zealand.
The ASX retail share has benefited from being on the receiving end of households spending more on their houses during these strange COVID-19 times.
In the recent half-year result for the 26 weeks to 27 December 2020, the company managed to achieve record sales and profitability despite 43 Melbourne stores being closed for almost half of the relevant reporting period. It managed to beat its sales and underlying earnings before interest and tax (EBIT) guidance after adjusting for the $6.1 million repayment of the jobkeeper wage subsidy.
Group sales increased by 34.8% to $243 million, but it's the online sales that particularly impressed. Adairs online sales went up 95.2%, store sales rose 4.6% and, excluding store closures, like for like store sales went up 14.4%. Mocka sales – which are entirely online – rose by 44.4% to $28 million. Total online sales amounted to $90.2 million, which represented 37.1% of group sales. Adairs has really tapped into this new retail environment.
There was growth of profit margins too from the ASX retail share. Adairs said this was a mix of sourcing, retail pricing initiatives and a strong focus on the reduced level of promotional activity. The number of storewide promotional events was reduced by 29 days during the half.
The gross margin increased 500 basis points, with the underlying Adairs gross margin improving by 690 basis points to 67.8%.
Underlying group earnings before interest and tax (EBIT) went up 166% to $60.2 million and statutory net profit after tax jumped 233.4%. This shows how much these margin initiatives have benefited the business.
In the first seven weeks of the second half of FY21, Adairs saw total sales growth of 25%, with Adairs online sales going up 65.9%. The margins remain elevated.
Morgans rates the Adairs share price as a buy with a price target of $4.50.
City Chic Collective Ltd (ASX: CCX)
City Chic is an ASX retail share that seeks to sell to plus-size women that want clothes, shoes and accessories.
It has been on an acquisition spree in recent years to expand its presence in the northern hemisphere. Avenue in the US and Evans in the UK are two businesses that offer the company access into the two large markets of the US and the UK.
The ASX retail share saw enormous levels of online sales growth – up 42% for the FY21 half-year result. Total sales went up 13.5% to $119 million, with online sales representing 73% of total sales, up from 65% in FY20.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 21.8% to $23.3 million, the EBITDA margin improved from 18.2% to 19.6% and statutory net profit rose 24.8% to $13.1 million.
Broker Morgan Stanley rates the City Chic share price as a buy, with a price target of $4.75.
City Chic is planning to leverage the Avenue business in the US by introducing the City Chic brand to leverage the significant traffic. It's also excited by the Evans business with it thinks is a perfect strategic fit and was a good value acquisition.
