2 retail stocks with hotter growth prospects than Tesco plc

The Motley Fool
Tesco sign
Tesco sign

Today I am looking at two retailers I'd stash my hard-earned cash into rather than Tesco (LSE: TSCO). For a long time now, I've sung the praises of menswear specialist Moss Bros (LSE: MOSB).

While the company is not immune to the trading troubles brought on by deteriorating economic conditions in the UK -- it was hampered by a "very tough trading environment" in the first half of the fiscal year -- it continues to post decent revenues growth as its store refit programme helps draw shoppers through its doors, and development of its e-commerce proposition carries on. Like-for-like sales rose 5.1% during February-July.

The City is expecting earnings at Moss Bros to rise 4% and 1% in the years to January 2017 and 2018, respectively, resulting in a prospective P/E reading of 16.4 times. While these medium-term projections may hardly be magnetic, Moss Bros' dividend prospects should certainly make investors sit up and take notice.

In fiscal 2018, the London-based company is predicted to shell out a 6.2p per share reward, up from 5.89p in the prior 12 months, and yielding 6.7%. And the yield steps up to 7.1% next year, thanks to expectations of a 6.5p payment.

Value star

I am also convinced that, with spending pressures mounting in the UK as consumer confidence falls and real incomes deteriorate, that sales over at B&M European Retail (LSE: BME) should keep on chugging merrily higher.

Reflecting previous tearaway sales performance, the Liverpool-based firm has seen its share value explode 68% over the past 12 months alone. And B&M's market price should continue to swell as sales on a like-for-like basis jumped 7.3% in the UK between April and June, the company said in its latest trading statement.

As I say, rising pressure on household budgets should send more and more shoppers into the arms of B&M in the years ahead. And the company is rapidly expanding to capitalise on this, opening nine new stores in the UK, and a further four in Germany, in the most recent quarter.

Accordingly, the City is anticipating earnings to leap 19% and 17% in the 12 months to March 2018 and 2019, respectively. And while current projections results in an elevated P/E ratio of 22.8 times, I reckon this is brilliant value given B&M's prominent role in an expanding market.

Competitive crisis

Like the retailers I have discussed above, Tesco is also expected to deliver profits growth now and for next year. Britain's biggest supermarket is predicted to report expansion of 51% in the year to February 2018, and by 26% in the following period.

But unlike Moss Bros, the scale of competition Tesco is facing to keep profits rattling higher is becoming increasingly formidable. Indeed, the same pressure on consumers' wallets that is driving shoppers heading over to B&M is also casting a shadow over the long-term earnings potential of Tesco, with shoppers of all income groups piling into the likes of Aldi and Lidl in greater numbers.

Current earnings projections leave the grocery giant dealing on a forward P/E ratio of 18.2 times. Unlike B&M and Moss Bros, however, I would be unhappy to pay a pretty premium for Tesco right now.

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Royston Wild 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 us better investors.