Why I'd sell this turnaround stock to buy Next plc

Over the past 12 months, shares in retailer Laura Ashley Holdings(LSE: ALY) lost 61% of their value as the firm has struggled to retain customers in an increasingly hostile retail environment, and investors have turned their backs on the business.

And based on today's results from the company, it looks as if Laura Ashley's outlook isn't going to improve anytime soon. For the 52 weeks to 30 June 2017, the company's like-for-like retail sales declined 3.1%. Online sales grew by 5.6% on a like-for-like basis, this improvement was not enough to offset declining physical store sales.

For the year, group sales were £277m compared to £401m last year, although I should point out that the last comparable period was 74 weeks long, so the figures are difficult to compare.

Group profit before tax and exceptional items was £8.4m for the year ending 30 June, compared to £24.7m for the comparable period (74 weeks long). Statutory profit before tax after including an exceptional charge of £2.8m was £6.3m compared to the comparable period's £22.8m. Based on these numbers, according to my calculations, on a weekly basis for the previous 74 week period, the company earned £308,000 per week giving a 52-week earnings estimate of £16m. This indicates a 60% decline in statutory profit before tax. These figures are only a back-of-the-envelope estimate.

City analysts are currently expecting the company's fortunes to recover next year, with a 17% increase in earnings per share projected and if the company can hit this target, then the shares might be an attractive buy for value investors. Based on current estimates, shares in Laura Ashley trade at a forward P/E of 6.5.

However, if you are looking for a cheap retail turnaround, I believe high street giant Next(LSE: NXT) would be a better pick.

Well-placed for growth

As customers continue to migrate from brick and mortar stores towards e-commerce, Next is better placed than most of its peers to capitalise on this trend. The Next Directory business is already well established among customers, and the infrastructure is in place for growth.

Indeed, the trading update published at the beginning of August revealed that total group sales had fallen by just 1.2% for the 26 weeks to 29 July. While this performance is disappointing it is still significantly better than that of Laura Ashley's like-for-like decline of 3.1%.

Rewarding shareholders

As well as chalking up better sales growth, Next is also planning to return more cash to shareholders. For the full year, management is targeting a cash return of £275m through four quarterly special dividends this year, giving a total yield, including regular payouts, of 8.6%. Laura Ashley announced today that it is planning to skip its final dividend, cutting its yearly payout from 2.5p to 0.5p.

Next's valuation is also attractive. Shares in the company trade at a relatively attractive forward P/E of 9.5. So overall, Next appears to be a much better buy than struggling turn around Laura Ashley.

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Rupert has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

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