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Why NEXT plc And Burberry Group plc Are Beating Marks and Spencer Group Plc & Supergroup PLC

If you invest in the fashion business, you really need to know which companies to for — it’s the ones with good long-term track records that keep bringing in the cash, not the latest fashionable ones.

Look at NEXT (LSE: NXT) versus Marks & Spencer (LSE: MKS) for example; both general fashion retailers and both with their own brands, but having remarkably different degrees of success.

Stagnation vs Growth

Earnings per share (EPS) at M&S has been stagnating for years, and only really kept up by food sales while the iconic store’s attempts to get people to buy its fashion offerings keep faltering. And in its third quarter to 27 December, we saw a 5.8% fall in like-for-like sales of womenswear — and this from a company that is supposedly turning around its clothing sales!

Meanwhile, NEXT has recorded five years in a row of double-digit EPS growth with a further 9% forecast for this year and next. And its December trading update revealed a 7.7% rise in total brand sales year-to-date with Directory sales up 12.9%.

It’s no wonder, then, that NEXT shares are up 251% over five years while Marks & Spencer has managed only 28%.

Even fashion should be long-term

What about upmarket high-fashion brands? Supergroup (LSE: SGP) was popular with investors a few years ago when various celebrities like David Beckham were seen sporting its Superdry brand clobber. Investors piled in, and in 2011 the share price soared to around £18 before collapsing to £2.67 just 16 months later. There was another surge, to a little over £17, in 2014 but that’s dropped back to £7.70 today.

Earnings have been erratic, but that’s fashion for you.

Burberry (LSE: BRBY) has been a complete contrast. Under the guidance of Angela Ahrendts until 2014, Burberry just kept getting it right and targeting the right customers to keep its brand up at the forefront of fashion brands — trendy young things like Emma Watson are always going to appeal to the fashionistas better than sweaty footballers in the long run.

The result has been steady EPS growth, with a flat year expected this year but forecasts strengthening again afterwards.

The bottom line? A 38% price gain over five years for Supergroup, trounced by 179% from Burberry.

Only go for the best

The lessons? Fashion might be fickle, but a top brand can keep things going far longer than a flash-in-the-pan upstart. And when it comes to retail, go for those who keep their stores packed with young shoppers year after year.

As part of a very simple approach to investing, picking a top fashion firm like NEXT or Burberry could help you to financial security.

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