N Brown Group (LSE: BWNG) isn’t immune to the problems currently affecting the rest of the retail industry, but in my opinion, this retailer has an edge over peers that should allow it to continue to profit while others struggle.
This edge is the group’s focus on the increasingly-popular plus-size segment. While plus-size clothing isn’t unique to N Brown, has established itself as one of the leaders in the segment.
What’s more, the company has built its operations on a digital base, so unlike other retailers such as Debenhams, which has tremendous rent and rates obligations to meet, N Brown is better placed to succeed in a digital world.
Online retailer
During the last financial year, N Brown’s physical stores only generated £15m of sales, or 2% of overall group revenue. And now management is planning to shutter the 20 high street stores the enterprise does operate due to “very disappointing footfall.” The cost estimate for closing these outlets is £18m to £22m.
Away from the high street, the group’s brands, including Simply Be and Jacamo, are still performing well. For the firm’s fiscal first quarter to June 2, total revenues rose 0.4% with online sales rising 3%. The company also benefitted from an increase in demand from consumers for financial services. Its financial services arm that lets customers borrow to finance purchases reported revenue growth of 9%.
City analysts believe N Brown’s internet-focused business model means that the group is well placed to continue to grow earnings. Growth of 5.6% is expected for fiscal 2019 and 4.7% for 2020. The dividend is expected to tick higher from 14.2p to 14.4p by 2020, giving investors an 8% dividend yield. And as well as this high single-digit yield, the stock is also trading at a bargain basement forward P/E of 7.8 — a rare situation where the yield is higher than the valuation.
Sector outperformance
Regional REIT (LSE: RGL) is another 8% yielder that the market seems to be overlooking. Like N Brown, shares in Regional have come under pressure recently due to retail sector woes. Falling profits on the high street are forcing landlords to accept lower rents on commercial property portfolios. However, so far Regional seems to be avoiding the worst of the decline. At the end of March, the group’s occupancy rate was 85.7% versus 85% at 31 December 2017.
It seems the company’s focus on offices is helping it navigate volatility in the commercial property market. At the end of March, offices accounted for 67% of the portfolio, and management is making the most of the market weakness to snap up more properties on attractive terms. Between the 29 and 31 of March, management inked two sizeable acquisitions, with a net initial yield of more than 8%.
Regional’s active portfolio management and continued high levels of occupancy suggest the company’s dividend of 8.1p per share is here to stay. At current prices, the distribution is equal to a market-beating dividend yield of 8.5%. With this level of income on offer, it’s no surprise star fund manager Neil Woodford owns a significant stake.
