2 growth giants that could make your fortune

Wine bottles

Majestic Wine (LSE: WINE) found itself on the back foot on Thursday following the release of full-year financials.

But fear not: today’s 3% dip reflects the broader waves of risk aversion sweeping financial markets rather than the highlighting of trading troubles at the retailer.

Indeed, Majestic Wine’s update underlined the terrific progress of the firm’s recovery strategy. The Watford business announced that sales rose 15.7% during the 12 months to March 2017, to £465.4m, or 11.4% on an underlying basis.

This could not stop Majestic Wine slipping to a pre-tax loss of £1.5m versus fiscal 2016’s £4.7m profit. However, the adverse result connected in large part to the acquisition of Naked Wines in 2015.

Toasting the results, group chief executive Rowan Gormley commented that “we are past the tipping point, both financially and operationally,” noting that the company is now past the riskiest and most cost-intensive part of its recovery strategy.

Starting to fizz

Majestic Wine’s three-year turnaround plan to stop the sales rot by binning the six-bottle minimum purchase and improving  the customer experience is clearly producing the goods.. The business saw adjusted earnings flip 51% higher during the second half of the fiscal year.

Like-for-like sales at Majestic Retail have now grown for the eighth successive quarter, and turnover leapt 5.4% during the year to March 2017, to £258.5m. And revenues growth is really starting to gain traction at its US business — turnover at Naked Wine rose 26.3%, to £142.2m, with demand from its Stateside customers exploding 28%.

On top of this, Majestic Wine’s goal of improving its online proposition is also bearing fruit, with multichannel sales now accounting for 56% of the group total. This is a critical area due to the marked shift in drinkers doing more of their shopping online.

The City does not expect earnings at the retailer to detonate just yet however, and a 4% dive is anticipated for the year to 2018. However, the results of Majestic Wine’s transformation drive are expected to be felt thereafter, starting with an 18% burst higher in fiscal 2019.

I reckon its improving momentum makes it worthy of a slightly-heady forward P/E ratio of 21.8 times.

Read all about it

I also believe WH Smith’s (LSE: SMWH) international expansion drive should lay the groundwork for strong earnings growth in the coming years.

The newsagent advised this week that, at its global Travel division, total sales rose 8% during the 15 weeks to June 10, or 5% on a like-for-like basis. WH Smith remains on track to open 15 UK-based units this year, it said, and will open a further six in Rome next month.

While the business isn’t performing as well on the high street (total and like-for-like sales here sank 4% in the period), I am convinced the retailer’s galloping progress abroad — allied with ongoing restructuring to mend profits at its domestic division — should continue to deliver chunky earnings expansion.

The City agrees, and expects WH Smith to keep its rich earnings record going with rises of 6% and 7% in the years to August 2017 and 2018 respectively.

I am convinced a prospective P/E ratio of 16.9 times is stellar value given the excellent sales progress of its international operations.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended WH Smith. 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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