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Should You Buy NEXT plc, Ted Baker plc Or Jimmy Choo PLC?

Investors in NEXT (LSE: NXT), Ted Baker (LSE: TED) and Jimmy Choo (LSE: CHOO) should have been pleased by their companies’ results this morning, but shares in all three firms have fallen since markets opened, as investors responded to a more cautious outlook from NEXT.

As I write, shares in NEXT are down 4%, Ted Baker is down 3%, and Jimmy Choo is off by 3.5%.

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Let’s take a look at the results behind these losses, and see how each of these firms performed last year:

2014 growth

NEXT

Ted Baker

Jimmy Choo

Sales

+6.9%

+20.4%

+6.4%

Adj. earnings per share (eps)

+14.7%

+20.6%

+7.6%

Dividend

+16.3% (excluding special dividend)

+19.6%

n/a

There’s nothing much to be concerned about here, I’d suggest, so the problem must be a combination of each firm’s outlook and its current valuation.

Slow start to 2015

In its outlook statement, NEXT says that some of its collections are not performing as well as they were at this point last year, and admits that last year’s strong sales — due to early spring weather — make comparisons tough for the year ahead.

As a result, NEXT only expects sales to grow by between 0% and 3% during the first half of 2015, with sales growth picking up in the second half to give full-year growth of between 1.5% and 5.5% — significantly lower than the 6.9% reported for 2014.

What about Ted and Jimmy?

Although it targets more upmarket customers and does more business abroad than NEXT, much of Ted Baker’s profit comes from the UK, and I reckon the firm could face some of the same headwinds as NEXT.

However, the outlook for Jimmy Choo is entirely different. The luxury shoemaker targets affluent customers all over the world and reported particularly strong growth in Asia, where sales rose by 34.5% thanks to strong demand in China.

Today’s best buy?

Ted Baker looks a little expensive for my taste, trading on 28 times 2015/16 forecast earnings, with a prospective yield of just 1.7%.

For growth investors, I reckon Jimmy Choo looks more promising. Earnings per share are expected to rise by 35% in 2015, giving a forecast P/E of 22 — not unreasonable for a growth stock.

However, my choice would be NEXT: the retailer’s 20% operating margin held firm last year, and it returned 300p per share to shareholders through ordinary and special dividends.

I don’t think 17 times forecast profits is too much to pay for this kind of quality, although I might be tempted to wait a little longer to see if the shares show any further weakness.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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