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Do today’s trading updates make Ted Baker plc and Joules Group plc essential buys?

The retail reporting flurry continued in earnest this morning as we received updates from lifestyle brands Ted Baker (LSE: TED) and Joules (LSE: JOUL).

For the eight weeks from mid-November to early January, retail sales at the former rose by 17.9% (10.6% in constant currency) compared with the same period last year. Online sales were even more impressive, soaring 35% (31% in constant currency), clearly indicating Ted Baker has succeeded in offering a decent e-commerce platform to shoppers — something not all retailers can boast.

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Given the fairly dire figures released by Next a week ago, I think existing investors should feel reassured by these numbers and management’s belief that Ted Baker’s full-year results will be in line with expectations despite the “tough trading backdrop“. So, with shares up 3% in early trading, should those not already invested be taking a closer look?

Thanks to the company’s ongoing efforts at international expansion (with openings in China, Bahrain and Indonesia over the reporting period), I believe the undeniably punchy price-to-earnings (P/E) ratio of 24 for 2017 can be justified. Assuming we don’t have another Brexit-style shock in the near future (which, admittedly, can’t be discounted), I’m confident these plans — and the company’s online — should continue to drive revenue and profits.

While this might not be sufficient to make the shares a must-buy, let’s not forget that this is also a business with an excellent track record of strong returns on capital, decent operating margins, consistent earnings per share growth and regular double-digit hikes to its dividend. All of these things are indicative of a high quality business so I think Ted Baker could serve investors well in the medium term.  

Giving it some welly

Like its lifestyle peer, market newcomer Joules delivered a strong performance over Christmas. Total retail sales rose 22.8% with gross margins “marginally ahead” of the previous year. With its shares rising by over 2% this morning, it appears the market is satisfied with this update.

According to CEO Colin Porter, today’s positive news reflects the “growing awareness and strength of the Joules brand“. I’m inclined to agree. The company’s fresh, colourful spin on traditional garments and thoroughly British identity appear to be striking a chord with consumers tired of shopping at Debenhams or M&S. This looks set to continue into 2017, particularly after the company revealed in December that it had seen strong growth in its wholesale order book for its forthcoming spring/summer range.

Are the shares worth buying? That depends on your investing strategy. For income-hunters, Joules falls short with a dividend yield of under 1% due for 2017. You can get much larger payouts from most FTSE 100 shares or a simple tracker fund.

For others, shares in Joules may be worth a look. Sure, a P/E of almost 26 for this year looks expensive but, like Ted Baker, this valuation takes into account plans to grow the global footprint by targeting new markets like the US and Germany. Given that international sales currently account for only a small proportion of revenue, a successful rollout in these countries could see the share price continue its upward trajectory. Hopefully, the company will reveal more on its plans for this year and beyond when interim results are announced at the end of the month.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Ted Baker plc. 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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