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Time to buy Halfords Group plc & N Brown Group plc as they surge on Q3 results?

Image: N Brown: Fair use

Retail giants N Brown Group (LSE: BWNG) and Halfords Group (LSE: HFD) have both seen their shares prices detonate in Thursday business following the release of bubbly trading updates.

Indeed, Halfords was last dealing 9% higher from Wednesday’s close, while N Brown has gained 7% in today’s session.

Pedal to the metal

Car-and-cycle emporium Halfords announced that sales growth has revved higher in recent weeks. Total sales rose 11.4% during the 15 weeks to January 13 while like-for-like sales were up 5.9%. This compares with growth of 8.1% and 3.5% in total and underlying sales respectively in the 41 weeks to mid-January.

Halfords saw demand across the business continue to rise, with cycle sales shooting 7.4% higher during the third quarter and car maintenance and motoring revenues rising 8.4% and 6.8% respectively.

The positive result prompted Halfords to shell out a special dividend of 10p per share. And this wasn’t the only good news to come out of the retailer as it announced the £8m acquisition of a minority stake in mobile tyre fitter TyresOnTheDrive.com, a move that bolsters Halfords’ position in the motor services market.

The City had been expecting Halfords’ bottom line to remain under pressure prior to today’s spritely results, with earnings dips of 10% and 2% pencilled-in for the years to March 2017 and 2018.

And while today’s results may prompt an upward revision, investors should bear in mind that rising inflationary pressures could see takings at Halfords weaken in the months ahead.

Having said that, some would argue that a forward P/E ratio of 12.8 times more than factors-in the risk of slipping revenues as we move through 2017. And Halfords’ moves to bolster its position as the go-to retailer for all things car- and bike-related could well help it to avoid a sales slump.

The right fit?

Regardless of what Brexit discussions hold for the UK economy in the months ahead, I reckon N Brown’s niche fashion lines should insulate it from any heavy revenues weakness.

The company’s latest trading statement certainly gave reason for optimism, N Brown advising that group sales had risen 4.1% in the 18 weeks to December 31, up from 2.1% in the prior quarter and underlining the success of recent marketing campaigns and improvements to its ranges.

Sales at the company’s plus-size and 50-plus brands Simply Be and JD Williams saw growth in double-digits in the latest quarter. And recent work to boost its online presence is also helping to drive sales higher — N Brown saw internet turnover move 12% higher in the period.

The abacus bashers expect earnings at N Brown to dip 5% in the year to March 2017 before flatlining in fiscal 2018. Still, like Halfords, I reckon today’s perky update could lead to an upward revision of these estimates, potentially making a current P/E rating of 9.6 times even better.

And I believe N Brown’s position at the affordabl’ end of the clothing segment should keep sales steaming higher looking ahead.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.