Niche retailers show signs of life

Discount retailer The Reject Shop (ASX: TRS) has continued to grow earnings in 2013.

a woman

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Discount retailer The Reject Shop (ASX: TRS) has continued to grow earnings in 2013, following on from its previously reported strong full-year results to June 2012. Comparable store sales were up 4.2% and when coupled with the 17 new store openings nationally, helped revenues to increase nearly 12% and adjusted earnings per share (EPS) to increase by 9%.

The Reject Shop continues to produce high levels of free cash flow, has a balance sheet with nearly no net debt and a pipeline of new stores to roll out. Management's guidance for the second half of the financial year included guidance for a further 23 store openings and positive comparable store sales.

While the outlook is tentatively improving for the apparel retailers such as Pacific Brands (ASX: PBG), retailers selling products other than fashion apparel look to be somewhat more confident. With a number of niche leading retailers having reported already this season ,this is certainly a space worthy of investigation.

Sofa retailer Fantastic Furniture (ASX: FAN) which trades under the Fantastic Furniture brand, as well as Plush, Dare, OMF, and Le Cornu brands, grew interim comparative store sales by 1.8%, EPS by 2.1% and raised its dividend by 1 cent per share (cps) to 7.5 cps. This is a reasonable effort given the lacklustre housing market which Fantastic is exposed to.

Meanwhile auto, leisure, and sports retailer Super Retail Group (ASX: SUL), whose stores include Supercheap Auto, BCF, Rays Outdoors, and Rebel Sport has produced a very strong interim result, with impressive EPS growth of 35% and a 31% lift in the dividend. The solid earnings and cash flow has allowed the company to aggressively reduce its debts and with further stores to be rolled out, the growth profile of Super Retail is certainly appealing.

Foolish takeaway

The common theme amongst these niche retailers is they sell products less exposed to online competition. Consumers still prefer to go into a store to sit on a couch, test out a tennis racket or snap up a bargain toothbrush.

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