With inflation steadily eroding the spending power of Britain’s shoppers, I reckon cost-conscious retailers like Shoe Zone (LSE: SHOE) could be about to come into their own.
While the company endured some difficulties during the first half of the fiscal year, it is doubling-down on what it does best by expanding its value ranges (like the expansion of so-called multibuy offers). But the firm is also venturing into new product areas to drive sales and, with demand for non-footwear items surging 26% during the 12 months to October, this appears a sage strategy.
Meanwhile, Shoe Zone is also improving its retail estate, the firm opening 17 stores and re-fitting 41 outlets last year. And the retailer is also improving its multichannel proposition to latch onto the e-commerce phenomenon, and in recent months has begun trading on industry giant Amazon’s sites in Germany, France, Spain and Italy.
City analysts certainly expect earnings at Shoe Zone to keep edging higher despite rising pressure on the wider high street. A 1% increase is predicted for the year to September 2017, with an additional 2% advance forecast for the following 12-month period.
These projections make Shoe Zone terrific value, with subsequent P/E ratios of 10.7 times and 10.5 times falling well below the widely-regarded value benchmark of 15 times.
And its robust record of earnings growth and strong capital position (it had £15m in cash as of last September and no debt) has enabled it to dish out huge dividend hikes in recent times.
Indeed, the retailer paid a total ordinary dividend of 10.1p in fiscal 2016. And the number crunchers expect this trend to continue, with payouts of 10.3p and 10.4p per share predicted for this year and next, projections that yield 5.6% and 5.7% respectively.
FTSE 250 play B&M European Retail (LSE: BME) is another favourite with bargain lovers not just in the UK but on foreign shores. And the number crunchers are similarly sunny on the retailer’s investment potential.
Earnings rises of 12% are predicted in each of the years to March 2018 and 2019. And while these numbers may create conventionally-high P/E ratios of 20.3 times and 18.1 times respectively, B&M’s PEG readouts of 1.7 for this year and 1.4 for next year actually suggest the retailer is attractively priced relative to its earnings prospects.
Dividend yields may not be anything to get excited about in the medium term — these register at just 2% and 2.2% for 2018 and 2019 respectively. However, the rate at which B&M is hiking dividends should come as huge encouragement to long-term investors.
The company raised the ordinary dividend to 4.8p per share in fiscal 2016 from 3.4p the prior year, and is anticipated to hike a predicted 5.9p reward in 2017 to 6.8p and 7.6p in 2018 and 2019. And B&M’s hot earnings and outlook and exceptional cash generation certainly support these perky forecasts (the retailer saw operating cash flow improve 76% in April-September, to £77.7m).
Like Shoe Zone, B&M is also aggressively expanding to make the most of rising demand for its low-cost goods, and opened its 500th store last year. And not only do I believe the business has what it takes to weather the Brexit storm, B&M’s expansion into Germany should also deliver splendid revenues growth in the coming years.