Compelling growth on show at Ted Baker plc and Merlin Entertainments plc

Shares in quintessentially British fashion retailer Ted Baker (LSE: TED) rose 1.6% today after releasing a steady trading update.

The company increased revenues by 14.3% for the 19-week period to 10 June 2017. This figure was inflated by international sales, which were flattered by the weak pound – at constant currency, sales rose just 8.4%.

New retail locations were opened in Los Angeles, Paris and Shanghai, France, Germany, Japan, South Korea and the Netherlands.

Wholesale turnover increased 13.8%, driven by a strong performances in the company’s key markets the UK and North America. E-commerce remains a very promising avenue for growth, with online sales jumping 35.9%.

The licensing division, which has nearly tripled profits since 2012, gathered more momentum, with new licensed stores opening in Dubai, Kuwait and Mexico.

Ted Baker’s British brand evidently has global appeal, but the UK still accounts for the majority of profits. Given the uncertainty hanging around the UK concerning Brexit, weakened sterling and consequential headwinds for retail businesses, the shares have been marked down 20% since late January.

The company has doubled profits in the last four years and, given low sentiment, trades on a PE of only 23. I believe Ted Baker can survive a bit of economic uncertainty and therefore view the share price slip as an opportunity to participate in a British success story.

Merlin has got the magic touch

There’s a beauty in simplicity, which is probably why Lego has managed to become one of, if not the largest and most influential toy companies in the world.

It’s no wonder, then, that investors are keen to gain some sort of exposure to this dominant brand. That likely explains why shares in Merlin Entertainments (LSE: MERL), operators of Legoland theme parks, trade on a PE of 23.

The shares are clearly much sought after despite a terrible accident at the company’s Alton Towers park two years ago. It;’s not just the Lego effect but is also due to the resilient and diversified portfolio of events collated by the company, including Sea Life Centres, Thorpe Park and Chessington World of Adventures.

Like Ted Baker, Merlin could be hit by a slowdown in consumer spending in the UK. The company, which also runs Madame Tussauds and The London Eye, also tends to see volumes decline in the wake of terror attacks, which seem all too frequent unfortunately.

Today the company reported solid progress towards 2020 strategic milestones, including 250 rooms opened in 2017, and a number of new attractions on track to open this year. They include Legoland Discovery Centres in Melbourne and Philadelphia, Madame Tussauds in Nashville, Sea Life Centre Chongqing and finally the Little Big City that will open in Berlin.

Counterintuitively, visitor numbers to the UK increased earlier this year despite terror warnings. This was due to the weakened pound, thus boosting revenues in London-based attractions.

Conversely, the theme park estate in the UK has seen fluctuating visitor numbers in the wake of the attacks, but the company still believes it is on track to fulfil 2017 expectations due to around 70% revenue being derived outside the UK in an average year.

The company put in a strong financial performance last year, generating a record £433m cash from operations, while turning a £211m profit. The growth plan seems strong and revenues are forecast to grow 11% next year, although I’m cautious about the £1.1bn debt pile. It is important to note that this debt level has held steady for years now and so does not seem to be an immediate problem.

These are two high-calibre companies, but pulling the trigger on buy decisions in the current political and economical climate can be tough.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended 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.