Shares in Crawshaw (LSE: CRAW) jumped in early trading this morning but have since fallen back and are currently trading down by around 7.8% after the company issued a mixed Christmas trading statement.
The firm, which sells fresh meat and food-to-go from stores around the UK, said sales in five weeks to January 1 grew 13% year-on-year. The number of customers visiting the company’s stores rose by the same percentage. However, the majority of this growth came from new store openings. Like-for-like sales declined by a disappointing 3.8% although this was an improvement on the 8.1% drop seen in the four weeks to November 27. Like-for-like customer numbers fell 4.2%, once again an improvement on the 9.7% decline seen a year earlier.
It seems Crawshaw’s efforts to stem its customer exodus are having at least some positive impact but gross margins have taken a hit as a result of the higher marketing spend by the group. For the period the gross margin in like-for-like stores slipped to 43.6% from 44.9% in the second half.
But overall, management expects the group to meet City expectations for growth this year. So despite mixed numbers, the group is on track.
Good news after a rocky year
Today’s relatively positive trading update is good news for Crawshaw’s investors. The company has had a rough year. After warning that pre-tax losses for the 26 weeks ended July 31 would increase to £400,000 from the £100,000 reported in the year-ago period at the end of September, shares in the group lost more than 50% of their value in a single trading day.
Unfortunately, City analysts don’t expect the group to return to the black any time soon. A pre-tax loss of £1m is expected for the year ending this month, and a loss of £700,000 is pencilled-in for the year after. The last time Crawshaw reported a profit was in 2015 and since then revenue has nearly doubled.
A better bet?
On the face of it, Crawshaw’s larger peer, Cranswick (LSE: CWK) may look to be a better investment than the struggling small-cap. Indeed, Cranswick’s earnings per share have grown from 73p in 2012 to 105p for the year ending March 31 2016. Over the next two years, the group’s earnings per share are expected to hit 129p. With average annual earnings per share growth rate of around 10% since 2012, it’s easy to see why the market is prepared to pay 20 times forward earnings for shares in Cranswick. As long as management can maintain the growth rate, it’s worth paying a premium multiple for them.
That being said, even though Crawshaw is lossmaking the group is still growing rapidly. Over time, as its store opening programme matures, management’s investments should start to pay off. For the first half of the group’s 2016 financial year, £700,000 was invested in new stores. If you strip out this cost, it would have reported a profit for the period.
Overall then, for the patient long-term investor, Crawshaw might be an attractive investment.
