The outlook for the UK economy remains relatively uncertain. Inflation has crept higher to 2.9%, and this could put pressure on consumer spending levels. It is now higher than wage growth, which has historically meant that consumer spending falls. As such, buying retail-focused shares may seem like a foolhardy move. However, with strategies that are working well and prospects which are relatively impressive, now could be the right time to buy these two clothing retailers.
Reporting on Tuesday was online and specialist-fit fashion retailer N Brown (LSE: BWNG). The company’s share price gained over 5% after it announced an improving performance from its business, as well as a store closure programme.
N Brown’s top line increased by 5.6% in the most recent quarter, with online revenue gaining 16%. The company has gradually been moving towards a more online-focused business model in order to keep costs down and adapt to an increase in online shopping. It now generates 71% of its revenue online, which is up from a figure of 67% last year.
The company also announced a store closure programme, with five of its unprofitable stores now set to be closed. Despite this, the overall performance of the business was positive, with an impressive period experienced for the Ladieswear segment in particular.
In the last five years, N Brown has recorded five consecutive years of falling earnings. While in the current year this trend is due to continue, next year it is expected to return to profit. This could lift investor sentiment and help to push the company’s share price higher. Since it trades on a price-to-earnings (P/E) ratio of 13.3, it seems to offer good value for money and could therefore be a sound buy ahead of an uncertain period for the UK retail sector.
High growth prospects
Also offering an upbeat outlook is online fashion retailer Boohoo (LSE: BOO). The company’s business performance continues to be strong, with an acquisition programme helping to keep sales and profit moving upwards at a double-digit rate. This looks set to continue, with the company forecast to post a rise in its bottom line of 32% in the current year, followed by further growth of 24% next year.
Boohoo has a relatively high P/E ratio of around 115. While this may put off a number of investors from buying the stock, its growth potential over the long run appears to be relatively impressive. It has the scope to engage in further M&A activity, while its international exposure means it should benefit from a weaker pound. With the UK political outlook highly uncertain, the business could see a significant gain from foreign exchange translation over the medium term.
Certainly, there are much cheaper shares within the retail sector. However, with an international focus, acquisition potential and an organic growth rate which is among the highest in the sector at the present time, now could be the perfect time to buy Boohoo for the long run.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended boohoo.com. 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.