There is still uncertainty as to how strong the sales environment will be for the holiday season, although we are just about 10 days from Christmas. We can, though, look back and see what kind of year it was for the specialty retailers. Which made the highest share price gains? Which had strong increases in earnings and which are better set for 2014?
The company with the highest share price gain over the last 12 months was Kathmandu (ASX: KMD), with a 95% rise to its current $3.05. After slipping in earnings in 2012, NPAT before abnormals was $39 million, up about 45% in 2013.
A consensus of analyst forecasts has the company as a moderate to strong buy in 2014. It has a low gearing and with long-term debt at $37.6 million and 2013 NPAT at $39 million, it theoretically could pay off all debt with one year's earnings. That shows stability coupled with good growth expectations.
JB Hi-Fi (ASX: JBH) followed up second with an 88% share price increase over the past 12 months to $19.60. The revival in the housing market gave the company renewed vigour. 2013 NPAT was up 11.4% from $104.6 million to $116.6 million, but I would expect that the market has priced in further growth as the property market gains starting in Sydney start fanning out towards the other capital cities.
Analyst forecast consensus has the stock as a "hold". The 16.7 PE ratio is at its highest in three years, but still below historic PE highs.
Coming in at number three was RCG Corporation (ASX: RCG), operator of The Athlete's Foot shoestores and the Australian distributor of such brands as Merrell Cushe, Chaco and CAT (Caterpillar) footwear and apparel. It rose 76% in this past year to $0.75.
Earnings growth over the past three years has been at a compound annual rate of 15.3%. In 2013 NPAT was above that trend, up 14.4% to $10.5 million. One analyst has given it a strong buy recommendation. Over the next financial year, it is expecting to achieve like-for-like sales growth of 3% – 4%.
Nick Scali (ASX: NCK) also rode the housing market theme up. It saw a 68% rise in share price to $2.61. NPAT before abnormals boomed up to $16 million from $9 million in 2013. The furniture retailer operates the Nick Scali and Sofas2Go stores and retails Chateau d'Ax furniture.
As more people buy new homes or spruce up existing houses, higher consumer sentiment will translate into more discretionary spending on furniture and household items. One analyst forecast has the stock as a "strong buy" recommendation.
Foolish takeaway
The year started out with some trepidation. Uncertainty still remains about the total effect of the mining downturn and whether unemployment will rise if the other sectors of the economy don't take up the slack. Investors have to be diligent in staying up with the news. We first want to see which companies survived the best during the previous slow period of growth and which ones flourished nonetheless. They probably have the best opportunities going forward, as we look for economic conditions to improve.
