Forget Tesco PLC: Why Pets at Home Group PLC And Halfords Group plc Are The True Retail Stars

Royston Wild explains why retail investors should overlook Tesco PLC (LON: TSCO) and pop into Pets At Home Group (LON: PETS) and Halfords Group (LON: HFD) instead.

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Make no mistake: fallen supermarket colossus Tesco (LSE: TSCO) faces a hell of a task to get its growth story back on track. The company has steadily seen its market share erode in the wake of the 2008/2009 financial crisis, with customers now flocking to either discount outlets for cheaper groceries or premium chains for better quality products.

Aside from the inevitable, and margin-crushing, introduction of mass price slashing, the Cheshunt-based firm has failed to unveil any productive measures to win back shoppers.

The instalment of new chief executive, and former Unilever bigwig Dave Lewis, installed hope that an injection of fresh ideas was in the offing. But Lewis’ refusal to spell out any clear turnaround strategy to the market last month — apparently on the grounds of Tesco operating in a ‘very dynamic business‘, as well as the new man not wanting to give away details to the competition — has caused many to question whether the new regime is similarly bereft of ideas.

With this in mind I have picked out two retail stars which I believe are, unlike Tesco, on course to deliver strong growth in the coming years.

Pets At Home Group

Animal retailer Pets At Home Group (LSE: PETS) remains THE place to go for those wishing to splash out on their four-legged friends, as highlighted by the firm’s latest financial update in October.

The beast emporium is witnessing strength across the entire business, and last month reported that group revenues surged 10.2% during April-September to £381.5m. Although the company saw Merchandise turnover leap an impressive 8.9% during the first half, Pets At Home’s push into animal care is paying off handsomely and total Services revenues charged 27% higher in the period.

The company continues to reap the benefits of the ‘Paris Hilton effect’, with activity at its Groom Room pampering studios steadily stomping higher. Pets At Home is also witnessing huge demand for its in-store veterinary practices, and accordingly plans to continue expanding aggressively in these areas — in total the firm plans to open 60 new medical bases and 50 grooming salons this year alone.

In addition, the firm’s ‘VIP Club‘ loyalty scheme is also witnessing strong levels of uptake, and subscriptions here surged to 2.6 million as of the end of September. This is sharply up from 2 million six months prior and is helping to push sales skywards — indeed, card usage during the July-September accounted for 58% of in-store revenues, up from 52% during the prior financial year.

Halfords Group

Car parts and bikes specialist Halfords Group (LSE: HFD) continues to enjoy the fruits of Britain’s love affair with their wheeled forms of transport. Indeed, the company’s interims today showed total revenues leap 6.8% during April-September, to £524.1m, which in turn powered pre-tax profit 11.2% higher to £49.6m.

In particular the company witnessed strong progress across its Cycling range, and saw like-for-like sales here advance 11% during the period. And Halfords is betting that this area will become an increasingly-important growth driver, the firm having purchased Boardman Bikes during the first half as well as the introduction of its 13 brand to its already-burgeoning portfolio.

Meanwhile the firm’s Car Maintenance operations also hurdled the effect of adverse weather conditions to punch underlying growth of 7% during the half. The business is also embarking on a vast store refurbishment programme to boost revenues, while the relaunch of — coupled with the rising popularity of its Click & Collect service — also promises to push sales higher. Indeed, internet transactions rose 13.7% in April-September.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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

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