Why Retail Stars ASOS plc, Pets At Home Group PLC And Thorntons plc Will Thrash Tesco PLC In The Growth Stakes

Royston Wild explains why ASOS plc (LON: ASC), Pets At Home Group PLC (LON: PETS) and Thorntons plc (LON: THT) look set to pound Tesco PLC (LON: TSCO).

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Make no mistake: beleaguered supermarket chain Tesco (LSE: TSCO) faces a whole host of problems that threaten to smash earnings expansion. The surging popularity of premium outlets such as Waitrose, as well as the assault of Aldi and Lidl from below; the introduction of margin-sapping discounting to slow the charge of the budget chains; the strong possibility of asset divestments in lucrative emerging markets in order to bolster the balance sheet. The list goes on…

There seems to be no end to the bad news flow coming out of Tesco, and the nation’s largest retailer has plenty of work hurdles to overcome in order to get back on track. With this in mind, I have selected three alternative retail superstars poised to deliver stunning shareholder returns.

ASOS

Clothing house ASOS (LSE: ASOS) is one of the major players in the retail hotspot of online shopping, so news this month that the firm experienced its busiest ever week during November’s ‘Cyber Weekend’ illustrates the surging popularity of this medium and should embolden investor confidence in sales growth moving forwards.

ASOS saw total sales in the UK surged 24% during September-November, to £104.8m, shrugging off the effect of unseasonal weather this autumn. The problem of a strong sterling remains problematic for its international operations, however, and overseas sales dropped 2% to £141.5m during the period.

However, I believe the introduction of zonal pricing in new markets — a strategy that has already been completed in Britain, France and Australia — combined with supply chain improvements in Europe and the US should improve competitiveness in foreign climes and drive long-term growth.

The company is expected to record a 5% earnings drop in the year concluding August 2015, according to City analysts, leaving the business dealing on a huge P/E multiple of 64 times. Still, projected earnings for this year marks a vast improvement from drops of 51% and 11% in 2013 and 2014 correspondingly, and should continue to improve as the fruits of internal transformation come to pass.

Pets At Home

Britain’s reputation as a country of animal lovers continues to drive trade at Pets At Home (LSE: PETS) through the roof. The firm saw total turnover leap 10.2% during March-September to £381.5m, with like-for-like sales rising 4.2% during the period.

The company is looking to hitch onto this strong momentum through aggressive store expansion, and plans to open 25 more outlets in the current year alone, taking the number to more than 400. In addition, Pets At Home is also boosting the number of pet salons and veterinary clinics in its stores, a red-hot growth area — revenues for these services jumped 27% during the first half.

Pets At Home is expected to see earnings gallop 100% higher in the year concluding March 2015, creating an appetising P/E multiple of just 14.4 times — any figure below 15 times is generally considered resplendent value. And a further 11% uptick in 2016 pushes this to just 13.5 times.

As well, Pets At Home also offers a tasty 2.4% yield for this year, and which moves to an even better 2.8% for 2016.

Thorntons

Luxury chocolatier Thorntons (LSE: THT) is poised to enjoy strong earnings growth on the back of its rebalancing strategy.

The business is aiming to slash costs and boost sales by taking the hatchet to its suite of shops and switching its focus towards supplying pre-packaged, branded chocolate to the UK’s largest supermarkets.

As well, Thorntons is hoping that its reputation as one of Britain’s most prestigious chocolate brands — the firm still commands almost a third of the country’s boxed chocolate market — will pay dividends in overseas markets, and is ramping up its international exposure to boost the bottom line in coming years.

City brokers expect Thorntons to punch earnings growth to the tune of 19% in the year ending June 2015, in turn producing a splendid P/E reading of just 11.3 times.

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 assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS, Tesco and Thorntons. 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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