NEXT plc Beats ASOS plc To Lead The Fashion Competition

Looking over the FTSE’s retailing sector, today I’m comparing the top dedicated of fashion and clothing.

I’ve picked the four biggest by market cap, which give an interesting spread between the FTSE 100 and AIM. They are NEXT (LSE: NXT), Burberry (LSE: BRBY), ASOS (LSE: ASC) (NASDAQOTH: ASOMF.US) and Mulberry (LSE: MUL).

Here’s a snapshot of their current fundamentals:

  NEXT Burberry ASOS Mulberry
Market cap £11.1bn £6.62bn £2.14bn £450m
Index FTSE 100 FTSE 100 AIM AIM
Year ended Jan 2014 Mar 2014
Aug 2013
Mar 2014
EPS growth
+23% +8% -51% -38%
17.2 18.1 94.8 36.1
Dividend Yield
2.1% 2.3% 0.0% 0.7%
Dividend Cover
2.84x 2.41x n/a 3.96x
Year ending* Jan 2015 Mar 2015
Aug 2014
Mar 2015
EPS growth
+15% -2% -18% -32%
17.7 19.7 62.1 56.0
Dividend Yield
4.2% 2.4% 0.0% 0.6%
Dividend Cover
1.39x 2.23x n/a 3.00x
Year ending* Jan 2016 Mar 2016
Aug 2015
Mar 2016
EPS growth
+8% +9% +38%   +30%
16.3 18.1 45.0 43.0
Dividend Yield
5.3% 2.7% 0.0% 0.7%
Dividend Cover
1.17x 2.13x n/a 3.28x

* forecast

The Mulberry price collapsed in January on a profit warning after significant wholesale order cancellations from Korea. It’s recovered a little, but at 750p it’s 23% down over 12 months. Mulberry sells high-priced leather goods, particularly handbags, so it’s is a very specific retailer with no diversification should handbag fashion change — and if there’s one thing that fashion does, it’s change.

A handbag?

A maker of handbags valued on a forward P/E of 56? I’m running away before Lady Bracknell gets here.

ASOSNot that I have much clue how ASOS finished the year to August 2013 on a P/E of 95, either! The online clobber retailer posted some amazing growth in its early years, but when you’re starting from zero and defining an online marketplace, rapidly upward tends to be where you go in the short term.

But meteoric rises don’t go on forever, and ASOS has faltered once or twice. The share price has been erratic, too. In 2011 it reach the heights of £24 before crashing back to less than half that. But that was nothing — in March this year ASOS reached £70 per share, and then slumped back to today’s £25.68!

White knuckles

I don’t want rides like that, especially as there’s no telling what growth is left for ASOS in a market that is rapidly maturing.

What about Burberry, which looks more sensibly valued on a forward P/E of just under 20? Burberry is very much a brand that is sold on its name — whatever this year’s Burberry look, people want it because it’s Burberry, not necessarily because they actually like it. It’s a one-brand company in the most fickle of businesses, and that’s just too risky for me.

That leaves NEXT, which I see as a very different proposition. NEXT goes for decent quality, stylish clothes at sensible prices. And when it comes to working out what is going to sell each year, NEXT has the knack of consistently getting it right. And it’s turning that into steadily rising earnings, with five years of double-digit EPS growth prior to the 15% forecast for this year.

And at 7,213p, its shares are on relatively modest forward P/E ratios of 16 to 18.

Timeless values

NEXT is a company growing organically and selling its wares on a timeless combination of quality and price, and it’s very well managed. It’s the only one I’d consider out of this lot.

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