It offers significant expansion potential and a boss that does not get paid.
Now, I know many ordinary investors are keeping clear of the general retail sector right now. You only have to look at share-price slumps such as these...
...as well as considering:
- all the boarded-up shops on the high street;
- all the headlines about cash-strapped shoppers, and;
- all the competition from the internet...
...to understand why the sector remains off-limits for most.
But if, like me, you're a contrarian investor, then this unloved part of the market may provide superb opportunities to unearth genuine bargains. Indeed, I was surprised to discover many retail shares have so far started 2012 very well, as predictions of a catastrophic Christmas proved far too pessimistic:
|Share||Year-to-date share-price gain|
|JD Sports Fashion||+14%|
Anyway, a tip-off from a fellow Fool has pointed me to what I feel might quite possibly be the best retail opportunity in the market today. Let me start by saying that this particular business is not of those complicated will-it-or-won't-it-go-bust gambles, such as HMV (LSE: HMV) and Game (LSE: GMG).
Instead, the chain I was told about has performed relatively well in the recession -- and offers considerable expansion potential, too. I did my own further research and came up with these ten interesting points:
- Through aggressive pricing and ruthless cost control, this retail chain now claims to be the clear market leader in its retail sub-sector.
- In fact, the success of this particular operator has helped push one quoted rival into bankruptcy and force another to seek emergency funding.
- Results for 2011 showed good progress, with sales up 10% and underlying profits up 35% as margins improved.
- The business offers significant expansion potential, with plans to operate within all 17 euro-nations within the next five years.
- In fact, European sales advanced by 10% last year to represent 8% of the group's top line, and major markets such as Germany, Spain and Italy still remain untouched.
- Alongside normal retail sales, the business enjoys a stable of prominent brands and enjoys a healthy level of brand and licensing income.
- Importantly, this retailer still has its entrepreneurial founder serving as an executive. After 30 years running the chain, his experience remains vital in what is a cut-throat sector.
- The founder remains a major shareholder, and I understand he's not collected a basic salary for the last nine years. That's nice to know in these times of fat-cat pay!
- Interestingly, the other directors participate in a bonus scheme that only pays out if profits improve by 50% by 2015.
- Meanwhile, the staff bonus scheme is one of the largest I've seen for a retailer -- £11m awarded during 2011 alone. I'm pretty sure that motivating the rank and file with large sums can help this business continue to prosper.
So there you go -- plenty of positives for anybody prepared to look beyond the grim headlines from the wider high street.
Yes, I was surprised, too!
So: what is the retail business in question?
Well, top marks for anyone guessing Sports Direct (LSE: SPD).
Now, I recognise selling cheapie tracksuits is not everyone's idea of a lucrative investment, but when you delve into the firm's annual report -- as I did -- you might be pleasantly surprised at this firm's progress, promise and potential. I know I was.
What's more, studying the annual report has prompted me to rethink my view of Mike Ashley, Sports Direct's 'colourful' founder. Like most people, I guess, I've been influenced by his negative press, and yet I discovered Mr Ashley does not collect a basic wage and likes to pay handsome bonuses to his workers. You can't really argue with that.
Read my colleague's research
If my summary has tweaked your interest in Sports Direct, you may wish to read the Foolish report from which I discovered the idea. Written by my Fool colleague Charly Travers, his report outlines the company in more detail and looks at many aspects I've not mentioned here. Charly's research is free to ordinary Fools and can be accessed right now -- I hope you enjoy it as well.