ASX reporting season is nearly over and there were certainly a number of exciting developments revealed. It has been fascinating to see which shares have been performing in the ASX retail share sector — and which ones have seen a sizeable reduction in sales.
After looking at some of the numbers and business plans, I really like the look of a few of the names at their current prices. Let's get into it two of them.
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Step One Clothing Ltd (ASX: STP)
The business describes itself as a direct-to-consumer retailer for 'innerwear'. The idea is that it sells a range of "high-quality, organically-grown and certified, sustainable, and ethically manufactured" underwear products, which includes a sports range.
The Step One share price is down heavily from 2021, as we can see on the chart below. I believe this is a long-term buying opportunity.
Step One's result included a 33% rise in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $12 million and a 19.3% increase of the average order value (AOV) to $89.49 as the business focused on upselling and bundling.
Underlying net profit after tax (NPAT) grew 61.7% to $8.6 million, while statutory net profit increased 387% to $8.6 million.
That said, FY23 revenue declined by 9.7% to $65.2 million, but this is amid challenging retail conditions. I don't expect households to face challenging circumstances like this for the ultra-long-term, meaning the future looks brighter.
The ASX retail share is going to do a number of things. It's going to be focused on profitable growth, growing its customer numbers, improving the customer experience, expanding its range, growing its sales channels, and investing in its capabilities and product innovation.
Interestingly, the business decided to declare a fully franked dividend of 5 cents per share, which represents a grossed-up dividend yield of 14%, thanks to "confidence" in the future for generating profit.
I think the long-term looks very positive, particularly if it can return to sales growth sooner rather than later. Plus, it ended the period with $38 million of cash, providing good backing to its market capitalisation of $84 million.
According to CMC Markets, the Step One share price is valued at 10x FY25's estimated earnings.
Universal Store Holdings Ltd (ASX: UNI)
The business says it sells "premium" youth apparel through its stores, online, and wholesale businesses. Its brands include Universal Store, THRILLS, Worship, and Perfect Stranger. The business currently has 95 physical stores across these brands.
While economic conditions are weakening, the business achieved impressive numbers with total sales growth of 26.5%, gross profit growth of 28%, underlying earnings before interest and tax (EBIT) growth of 23.8% to $40.4 million, and NPAT growth of 14.6% to $23.6 million.
The ASX retail share's Perfect Stranger brand is performing well, with a 187% increase in total sales to $8.9 million, with the footprint expanded to eight stores. Another two are expected to open in NSW in the first quarter of FY24 with management planning to accelerate the Perfect Stranger store rollout.
FY24 has started off slowly, with Universal Store brand sales down 4.2%. However, the ASX retail share's other channels are "performing well", with the wholesale order book indicating "double-digit" growth of the wholesale channel in the first half of FY24.
It's expecting to open another four to six Universal Store locations in FY24, another five to eight Perfect Stranger stores, and one to two THRILLs stores. The gross profit margins remain "steady".
It's also working on several initiatives to manage costs, and carefully manage inventory. According to CMC Markets, the Universal Store share price is valued at 9x FY25's estimated earnings with a possible grossed-up dividend yield of 10% for that year.
