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Forget 0.5% from a cash account. I think these 2 retail growth heroes could suit you much better

I should declare an interest here. I am the owner of a Ted Baker suit and it is a very good suit. Thankfully, I don’t own any shares in Ted Baker (LSE: TED), which looks a bit threadbare following recent shock news.

Teddy trouble

Some 200 staff have signed an online petition complaining of a culture of forced hugs at the global lifestyle brand, with founder and CEO Ray Kelvin now subject to an internal investigation.  This is the danger with investing in companies driven by a single, strong individual, you are exposed if something happens to them.

The scandal has wreaked havoc on Ted Baker’s share price which is down 20% over the last week, and 45% over the year. This overshadows today’s trading update for the 16 weeks to 1 December 2018, which hailed a “resilient performance despite challenging external trading conditions”

Online growth

The £657m FTSE 250 company posted a 0.2% decrease in group revenue (0.4% in constant currency) year-on-year, which reflected the anticipated decline in wholesale sales due to delivery timings, largely offset by a positive retail sales performance. Trade in the UK, Europe and the East Coast of America was affected by unseasonal weather, while the wider UK retail slowdown also hurt.

It is fighting the high street decline with an 18% rise in e-commerce sales, which now represent 30.3% of total retail sales, up from 26.3% last year. Both retail and wholesale gross margins were in line with expectations.

Suits you

The group opened licensed stores in India, Kosovo, Saudi Arabia, Singapore and South Korea and Kelvin himself emerged to praise “the strength of the Ted Baker brand and the design and quality of our collections”. It now trades at 13.6 times earnings and yields a progressive 4.4% with cover of two, and although earnings are forecast to drop 1% in 2018, City analysts are pencilling in 4% and 9% growth over the next two years.

The scandal overshadows everything but it is worth noting that investors were already selling before it broke. Kelvin stays on for now, but if he goes conditions will look even more challenging. Some might see this as a buying opportunity, though.

Crowned Joules

Joules Group (LSE: JOUL) is another premium lifestyle brand and multi-channel retailer whose share price has lost its shine. It grew strongly after listing on AIM in May 2016 but is now down 33% in six months and our old friend ‘challenging conditions’ are partly to blame.

The stock fell despite positive full-year results in July, which showed a 28.5% rise in underlying pre-tax profit to £13m, with revenues up 18.4% and its international operation expanding strongly. This week’s update was also pleasing, with first-half profits ahead of initial expectations and its e-commerce operation doing “particularly well”, accounting for almost 50% of sales.

Brexit casts a shadow, but the City still reckons Joules can increase earnings by 15% in the year to 31 May 2019, and 19% the year after. With the stock now trading at 17.3 times earnings, and global and online growth prospects still looking healthy, it looks a tempting buy. The yield is just 1.2% but management is progressive, and with cover of 4.8 it can afford to be.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Joules Group and Ted Baker. 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.