High street retailers number among the least popular UK shares right now, but there are exceptions. Some companies have shown they can adapt and survive, notably these two. Both FTSE household names that were hit hard in the March stock market crash, but have shown signs of resilience since. If I had £2k to invest, or any other sum, I’d consider splitting it between them.
Electrical and telecoms retailer Dixons Carphone (LSE: DC) crashed out of the FTSE 100 three years ago, as the weaker pound pushed up import costs and online competition hit sales. It was struggling, even before the pandemic shut its shops.
The Dixons carphone share price has lost 80% of its value in the last five years. Today, it trades at just 8.1 times earnings. Does that make this UK share a bargain, or a value trap?
Fighting back after the crash
Dixons, which owns Currys and PC World, has been fighting back successfully online. Its Shoplive platform lets customers book online appointments with in-store assistants and see video demos before buying. The result: online sales tripled while stores were shut in May and June and jumped 122% in the following nine weeks.
Last week’s trading statement suggests online sales are holding up, even as shoppers venture out again. Stores are closing and jobs are going, and airport sales worth 5% of its total remain grounded by the travel lockdown. However, if Dixons Carphone can establish itself as a thriving online business, it could have a more secure future. It now seems well placed to survive further lockdown measures, with a net cash position and access to £1.3bn in debt facilities. There is no dividend for now, but I still think this UK share is a long-term buy.
Clothing chain Next (LSE: NXT) has also shown it can survive the high street meltdown. Again, it is mostly doing this by building an online offering, in addition to its bricks and mortar outlets. Covid-19 has been harsh, with full-price Q2 sales falling 28%. On Thursday, Next is expected to report an 80% drop in first-half pre-tax profits to £320m. However, the FTSE 100 group remains on course to cut net debt and stay within its cash resources.
UK shares bucking the trend
Next has protected its balance sheet by cancelling dividends, scrapping share buybacks, selling assets and cutting capital investment. Management is positive, with plans to open three beauty halls in former Debenhams stores. It has just acquired a majority stake in the UK and Irish arm of L Brands’ Victoria’s Secret unit, as part of a joint-venture agreement.
Online sales continue to rise and even store sales have held up better than expected. Like many UK shares, much now depends on social distancing rules, earnings, unemployment and whether we get another lockdown.
The Next share price has rallied strongly since the stock market crash, rising 55% in the last six months. That leaves it trading at 12.69 times earnings. That’s cheap as UK shares go, but not dirt cheap. There is no dividend for now, but it should come back one day.
Times will still be tough for these two UK shares, but they have shown admirable resilience so far.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. 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.