Even if there are some exceptions (cf Nick Scali), most of the non food retailers are now publishing quite good updates, due to several elements : - better sales trend, - better gross margins (significant in some cases, like Baby Bunting or Michael Hills), - and probably less cost pressure*, due to less inflation pressure.
This is already reflected in the valuation of the main companies in the sector. However, there are still some retailers which look quite cheap. In particular Shaver Shop and Dusk.
These 2 retailers have a free cash flow yield of 10 %+, which explain the high level of dividend yield.
Of course, the main question is whether this level of free cash flow is sustainable. In both cases, I expect short term earnings to be driven by top line : - Dusk has proven since May 24 that it has been able to stabilize then grow its top line thanks to new collections which are more appealing to customers, with their new management (CEO and new marketing manager), - in the case of SSG, their high level of net promoter score of 89 (out of a possible maximum of 100) shows that the company is still really appreciated by its customers and potential customers.
The level of risk on both stocks seems quite limited**, looking at their performance when retailers were under pressure last year : - Shaver Shop continued to have a high level of cash flow and once again a good resistance of its gross margin, with a minimum cost inflation, - Dusk was much more impacted by the consumption slowdown last year, but kept showing a high level of cash flow from operation. In both cases, companies clearly focus on existing stores and are very cautious about opening new stores.
Next update for Shaver Shop and Dusk is expected mid-November at both companies AGM.
* except higher freight rates as mentioned by Nick Scali. ** main risk is probably that they are microcaps.
