2 FTSE 250 stocks that could deliver explosive earnings growth

When a UK retailer decides to enter the US market, it’s often a turning point. Companies that succeed open the door to significant growth. But firms that get it wrong — and many do — can lose cash for years as they struggle to gain scale and acceptance.

In this article I’m going to look at one UK-based brand that’s getting it right in the US, and another company that’s just announced plans for a bold move across the pond.

Is this guy for real?

Sports Direct International (LSE: SPD) surprised markets on Friday morning with news that the group will spend $101m to take control of a bankrupt group of 50 sportswear and outdoor stores in the eastern USA.

The firm has acquired the businesses of Bob’s Stores and Eastern Mountain Sports. The firm says these will be used to “establish a footprint in US bricks-and-mortar retail and a platform from which to grow US online sales”.

It’s a bold move by Mike Ashley, founder and CEO of Sports Direct. The group already has more than 700 stores in the UK and Europe. It’s also experimenting with a move upmarket, through brands such as London retailer Flannels and an indirect stake in lingerie firm Agent Provocateur.

Investors may wonder if Mr Ashley has the financial resources and management bandwidth to successfully launch a new venture into the crowded US sportswear and outdoor market. His rapidly expanding empire could end up imploding.

This could work

On the other hand, it’s possible that Mr Ashley is one step ahead of the market.

Although Sports Direct’s underlying earnings are expected to fall by 55% this year, much of this is due to currency headwinds. Underlying group revenue rose by 4.2% during the first half of the year. The growing strength of the pound could soon repair some of the damage to Sports Direct’s profit margins.

In the US, a recent round of mergers and bankruptcies among retailers could put Mr Ashley in a better position to succeed than his stores’ previous owners.

Analysts remain downbeat on Sports Direct, and are forecasting an 8% decline in earnings for 2017/18. I’m not sure how to call this one, so I’m going to stay on the sidelines for now.

A US success story

I don’t think that investors need to be concerned about the US activities of fashion brand Ted Baker (LSE: TED).  The group’s US and Canada sales rose by 28.3% to £103.4m last year, accounting for about 19% of all sales.

This percentage broadly matches the group’s store numbers in North America. Ted Baker has 111 stores in the US and Canada, representing 22% of the company’s total of 490 stores.

Although the firm doesn’t seem to provide a breakdown of profit by location, I think it’s probably fair to assume that its US operations are profitable. Looking at the bigger picture, Ted Baker’s earnings per share have risen by about 20% every year since 2012. The group’s dividend has risen by an average of 16% per year over the same period.

With a track record like this, I’m not surprised that Ted Baker shares trade on a forecast P/E of 22. The group’s high profit margins have enabled it to fund growth without excessive debt. Further gains seem likely to me.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International and Ted Baker plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.