There’s no doubt about it, the weather plays a key part in consumers’ shopping habits. A warm winter or a washed-out summer can make a real mess of retailers’ figures, as they often have to start sales earlier than would normally be the case. This puts pressure on margins and, of course, profits.
So, with the summer in full swing and not too many clouds in the sky, I felt that now could well be a good opportunity to take a look at three interesting stocks, all of which could benefit from a good summer.
The Growth Star…
Firmly on the sale rail, with over 50% off the ticket price (compared to the IPO price) is Boohoo.com (LSE: BOO). Investors have seen this stock fall to lows of around 22 pence in January this year, as the market punished the shares following growth that came in way below what the market was expecting.
Investors and brokers alike have had to reset their expectations: accordingly, the shares have traded sideways for most of this year, with earnings expectations trending down over the last 12 months. Even so, the shares don’t scream “cheap”, trading on a forward multiple of around 24 times earnings – that said, there is over £50 million in cash on the balance sheet.
However, the company released a reassuring update to the market in June, covering the first quarter. Sales were up 35% (37% at constant exchange rates), there was a 32% increase in active customers, and management noted that there had been a good response to the spring/summer marketing campaign. Should this good weather continue, we could see the company revise its profit forecasts upwards, meaning that this growth star may shine for investors once more!
No Frills At Shoe Zone?
Another recently floated retailer that came back down to earth with a bump following an unexpected profit warning is bargain shoe retailer Shoe Zone (LSE: SHOE).
Investors will be feeling the rub after the shares crashed from recent highs of 270 pence to a current price of around 175 pence. At this price, the shares trade on less than 9 times forecast earnings and are expected to yield over 6% — some may think that this is a bargain and, on face value, they are. However, I wouldn’t be surprised to see the shares remain cheap until investors regain their faith in management and their ability to communicate with investors more effectively.
Again, should the sun continue to shine and management continue to rationalise the store portfolio whilst building the online presence, then investors could well see confidence start to return and the shares re-rate upwards.
Despite being in my forties, I have resisted the temptation of being attired with a Superdry coat – I have left most of my similarly aged friends to purchase their clothing from the fantastically popular Supergroup (LSE: SGP), the retailer for twenty-somethings (and, it seems, forty-somethings).
This private investor darling has had its fair share of ups and downs, and the downs have been the best place to buy this quality operator.
When the company reported that the unseasonably mild September and October weather last year had adversely affected sales, the market marked the shares down to less than 800 pence per share. Currently they stand at almost double that price, as the company recovered.
Within the recent final results, management reported that group like-for-like sales were over 20% ahead of the same period last year, albeit compared to weaker comparatives.
Whilst the shares don’t look like a bargain basement buy, currently exchanging hands on around 20 times forecast earnings, I note that brokers are starting to upgrade their earnings expectations. Should the company enjoy a sizzling summer, both at home and as it expands abroad, I wouldn’t be surprised to see the shares climb higher from here.
It is true that while some traders will make their fortune on short-term trades on these and other retailers by getting the call correct, others could find that they have lost their shirts.
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Dave Sullivan owns shares in Shoe Zone. 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.