Will Debenhams Plc And JD Sports Fashion PLC Outperform WM Morrison Supermarkets PLC After Today’s News?

Shares in Debenhams (LSE: DEB) have risen by around 3% today after it released an upbeat set of results for the first half of the year. Like-for-like (LFL) sales increased by 2.4% at constant currency and with gross margins rising by 20 basis points, the impact on the company’s profitability was positive. In fact, Debenhams’ pre-tax profit rose by 5.5% and this allowed it to ramp up dividends per share by 2.5%.

Looking ahead, Debenhams is close to appointing a successor to current CEO Michael Sharp, who will leave the company this year. Clearly, change brings uncertainty but with Debenhams trading on a price-to-earnings (P/E) ratio of just 10.4, it seems to have a sufficiently wide margin of safety to merit purchase at the present time. That’s at least partly because the UK economy continues to move from strength to strength, with a loose monetary policy likely to remain in place and to boost consumer spending over the medium-to-long term.

Record breaker

Also reporting positive results today was fellow consumer goods company JD Sports (LSE: JD). Its full-year results are a record for the business, with operating profit before exceptional items rising by 56% versus the prior year. This has been aided by LFL sales growth of 10% in the company’s sports fashion division, with the company’s European rollout also offering excellent long-term growth prospects. In fact, JD increased its European exposure through a net increase of 38 stores last year and with progress in the company’s outdoor division also being encouraging, it seems to be well-placed to deliver further strong performance as a business.

Looking ahead, JD Sports is forecast to increase its bottom line by 11% this year and by a further 8% next year. While both of these figures are highly impressive, the company’s price-to-earnings-growth (PEG) ratio of 2.1 indicates that its shares may be fully valued. As such, and while its performance as a business is sound, as an investment there may be better options available elsewhere.

Growth star?

One example is Morrisons (LSE: MRW). Its shares have outperformed JD by 19% since the start of the year, with them also outperforming Debenhams by 23% over the same time period. And there could be further outperformance to come, since Morrisons appears to offer better growth prospects than its retail peers and at an even more enticing price.

For example, Morrisons is forecast to grow its earnings by 44% in the current year and with its shares having a PEG ratio of just 0.4, there still seems to be plenty of scope for further share price rises. Although the supermarket sector remains a tough place in which to do business, Morrisons seems to have adopted a sound strategy through which to generate improved performance. By returning to its core activities and leveraging its position as a major food producer, Morrisons seems to be on track. And while Debenhams appears to be an excellent buy, Morrisons looks likely to continue to outperform it over the medium term.

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Peter Stephens owns shares of Debenhams and Morrisons. 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.