ASX retail shares can be some of the most appealing investments because of their low valuations and the underrated profit potential.
Some of the biggest retailers on the ASX have delivered strong returns this year. To date in 2024, the JB Hi-Fi Ltd (ASX: JBH) share price has climbed 47%, and the Wesfarmers Ltd (ASX: WES) share price is up 23%.
I certainly don't expect all other ASX retail shares to deliver those sorts of gains in the short term. But, I do believe there are a few underappreciated businesses that could achieve strong returns. Here's why I think the two retailers below are compelling ideas.
Premier Investments Limited (ASX: PMV)
Premier Investments owns several retail brands, including Smiggle, Peter Alexander, Just Jeans, Jay Jays, Dotti, and Portmans. The ASX retail share also has large positions in Myer Holdings Ltd (ASX: MYR) and Breville Group Ltd (ASX: BRG).
The company recently reported its FY24 results, with sales down 2.9% year over year to $1.6 billion, operating profit (EBIT) falling 6.9% to $240.9 million, and statutory net profit declining 4.9% to $257.9 million.
Premier Investments has several growth opportunities. It's adding new stores to its existing network in Australia and New Zealand and has identified 20 further opportunities for new and/or larger-format stores in the near term. Peter Alexander is also launching in the United Kingdom, with up to 10 new stores identified as part of the initial launch plans.
Smiggle also has a global growth runway. It's planning to add to its store network, including in Indonesia and the Middle East.
According to Factset, the average analyst price target on the ASX retail share is $32.82. However, the most bullish price target is $38.33, which implies a possible rise of 24% over the next year, if that optimistic forecast is achieved.
Step One Clothing Ltd (ASX: STP)
This company describes itself as a direct-to-consumer online retailer of underwear. It offers a range of "high-quality, organically-grown and certified, sustainable, and ethically manufactured" underwear that suits a broad range of body types.
Step One had a very promising FY24, with customer orders rising 19.6%, revenue rising 29.7% to $84.6 million and net profit going up 43.9% to $12.4 million.
It's a global business with a presence in Australia, the UK and the United States. I think it's going well in those international markets. In FY24, UK revenue rose 33.2% to $27.1 million, and US revenue increased 261.5% to $6.5 million.
The company plans to expand its underwear range and adjacent products, win new customers, expand globally, and improve its customer service.
According to Factset, there is only one price target on this ASX retail share: $2.25. That suggests the analyst believes the Step One share price could rise by around 31% from where it is today.
