Fashion retail shares to back this Christmas

The cost of getting it wrong is massive, so we identify the retail stocks to thrive this festive season.

A record Black Friday for Boohoo (LSE:BOO) has raised hopes that the retail sector's select band of momentum or quality stocks will continue firing on all cylinders this festive period.

Today's brief update by high-flying fashion chain Boohoo reversed recent share price jitters, with joint house broker Jefferies sufficiently impressed to raise its price target by 50p to 375p.

That's despite the AIM-listed star stock already being 90% higher at 309p over the course of 2019, having delivered a series of upgrades on the back of successful trading for its brands including PrettyLittleThing and NastyGal.

The Manchester-based company now trades on a substantial forward price/earnings (PE) multiple of 53.5 times and is worth £3.5 billion - £900 million more than its rival ASOS (LSE:ASC).

Source: TradingView Past performance is not a guide to future performance

Based on a strong record of outperformance and success in understanding what its customers want, there's a good chance Boohoo will continue to outshine the rest of the retail sector.

Analysts at broker Zeus nudged up their revenue forecasts for the 2020 financial year today, with the potential for further upgrades in January given that the company's management has a record of being cautious ahead of peak December trading. Today's update implies revenues growth of around 38%.

Zeus went on to describe Boohoo as “an innovator and disruptor at the forefront of the fashion ecommerce market”, adding that it was also pleasing the automation of the Burnley warehouse had passed its first major test on Black Friday.

Boohoo isn't alone, however, in making light of the generally gloomy retail headlines to achieve spectacular share price growth. JD Sports Fashion (LSE:JD.), in particular, continues to soar in the FTSE 100 index after doubling in value to more than £7 billion this year.

Next (LSE:NXT) has also found the retail sweet spot, with shares up two-thirds in 2019. In contrast, Marks & Spencer (LSE:MKS) has recently exited the top flight and is now close to being overtaken in value terms by Boohoo after a 20% fall for its shares this year. And spare a thought for investors in Ted Baker (LSE:TED) after a strife-torn year left the former high-flyer 75% cheaper.

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The dramatic shifts in the way people shop have been debilitating for the likes of M&S and Ted Baker, particularly as the department store model continues to lose its relevance for many shoppers. Now it's all about ease of online shopping and rapid delivery times.

Those retailers able to meet the demands of today's internet-savvy demographic are likely to be rewarded, which is why it's encouraging for investors that signs from the Black Friday and Cyber Monday trading period appear to be positive.

In the United States, consumers spent a record $7.4 billion and were likely to have splashed out another $9.4 billion online yesterday, according to Adobe Analytics. On this side of the Atlantic, the General Election campaign has given shoppers some respite from the uncertainty caused by Brexit.

Consumer confidence is still fragile, but this latest Brexit delay may well have been enough to ensure some robust trading figures come January 3, when Next kicks off the sector's traditional round of updates. Other dates to note include M&S on January 9, Boohoo on January 14 and ASOS on January 23.

Source: SharePad *Share prices as at lunchtime 3 December 2019

Investors will be hoping that the sector can avoid last December's rollercoaster ride, which was triggered by a profits warning from ASOS amid reports of a high level of discounting and promotional activity across the market.

Brokers slashed as much as 65% from their ASOS price targets and also worried about the implications for the rest of the retail sector. Their worst fears proved unfounded, however, as the sector subsequently delivered a resilient set of Christmas trading updates.

The difficulties reported by ASOS turned out to be as much down to its own operational issues, having struggled with the roll-out of automated warehouses in Atlanta and Berlin. Its shares have rebounded in the second half of the year and are now up 38% across 2019, giving it a forward PE in line with Boohoo at 56.2x. That's still short of its 10-year average at 81.3x.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.