UK shares: 2 FTSE retail stocks to buy and 2 to avoid in February
As January comes to an end, an array of FTSE retail companies have reported their quarterly results. There were several winners and losers from that group. I’ve selected two UK shares that I think are worth buying, and another two I’ll avoid in February.
1. Marks and Spencer
As the best-performing FTSE-listed grocer last quarter, Marks and Spencer (LSE:MKS) makes it on my shopping list. The hybrid retailer had an excellent quarter that boasted the highest food and clothing sales growth, beating giants Tesco and Sainsbury’s. This resulted in market share expansion on both fronts. And with plans to accelerate its store rotation plan, the FTSE 250 group has plenty of potential to grow further.
Additionally, M&S is slowly improving the state of its balance sheet and paying down debt. Pair that with cheap valuation multiples, and I’ll be looking to buy more shares in the coming days.
Marks and Spencer
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Price-to-earnings growth (PEG) ratio
The doom and gloom surrounding home improvement stocks has dissipated over the past couple of months, as the numbers have proven their resilience. Dunelm (LSE:DNLM) proved its doubters wrong once again with yet another strong trading update. Therefore, it’s no surprise to see its share price up a whopping 60% from its bottom in September.
The company reported an expected fall in margins, but it all seems meaningless when other, more meaningful metrics are furnishing better numbers. Sales last quarter were 18% higher and up 48% from pre-pandemic levels. Moreover, the board now anticipates full-year profit before tax to come in above the analyst consensus, at a range of £131m to £186m.
3. Dr Martens
On the flip side, Dr Martens (LSE:DOCS) are getting the boot from me. It’s not difficult to understand why, as the shares are down 30% already this year.
The shoemaker’s latest update was filled with bad news. A supply chain issue related to a bottleneck at its new Los Angeles distribution centre is the main culprit. Consequently, the company now expects weak US sales for the year.
As a result, it now forecasts profits to decline substantially. Wholesale revenue may take a hit of anywhere between a £15m to £25m, while EBITDA will lose approximately £16m to £25m, including £8m to £11m of supply chain costs.
4. Naked Wines
I’m also avoiding Naked Wines (LSE:WINE). The pandemic favourite has fallen from favour since Covid restrictions were lifted, prompting management to reverse course on its ‘growth at all cost’ model. This translated into a sweet update recently. The firm did report a rather upbeat set of figures from its latest quarter, and even updated its forecasts for better profits.
Nonetheless, I’m unconvinced about its longer-term potential. There’s certainly hope for the retailer to age like fine wine. However, I don’t see its share price growing at such a rate that warrants the opportunity cost of investing in other UK shares with higher upside potential.
The post UK shares: 2 FTSE retail stocks to buy and 2 to avoid in February appeared first on The Motley Fool UK.
John Choong has positions in Marks And Spencer Group Plc. 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.
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