Overinvested in Woolworths shares? Here are two alternative ASX retail stocks

MotleyFool
2024-12-17

Plenty of investors hold large quantities of Woolworths Group Ltd (ASX: WOW) shares in their portfolios. Woolworths is one of the larger ASX blue-chip shares, after all.

However, there could be better ASX retail shares with stronger growth prospects to own right now.

Buying shares in retail businesses can be a great way to tap into consumer trends and pick out stocks that can benefit from the economy's recovery. However, many households are struggling right now due to inflation and high interest rates.

I think a good time to invest in ASX retail shares is during tough retail conditions when share prices are depressed rather than once retail conditions improve.

Considering the current opportunities and share prices, here's why I think the following companies are buys.

Shaver Shop Group Ltd (ASX: SSG)

Shaver Shop is one of the leading retailers of personal grooming products, including electric shavers, clippers, trimmers, and wet shave items. It also offers a range of other products, including oral care, hair care, massage, air treatment, and beauty categories.

In my view, this business has fairly defensive earnings because consumers always need these products. Shaver Shop has exclusive agreements with some shaver brands, which allows the company to provide desired products to consumers and achieve a higher gross profit margin.

I think the ASX retail share can grow its profit in the longer term by opening more stores, expanding its online stores, working with more brands, being more efficient throughout the business, and expanding its product range.

Based on the company's FY24 numbers, the ASX retail share is trading on a price/earnings (P/E) ratio of 11, with a grossed-up dividend yield of 11%, including franking credits. These are attractive statistics, in my view.

Temple & Webster Group Ltd (ASX: TPW)

I think Temple & Webster is an exciting ASX retail share because of its rapid growth and online-only presence.

The company benefits from the fact that Millennials and Generation Z are reaching the higher-spending stages of their lives. These consumers are also more likely to shop online, so Temple & Webster can benefit as more Aussies adopt online shopping.

Temple & Webster is a very scalable business, in my opinion. Many of its products are shipped directly by suppliers, so the ASX share doesn't need to carry the inventory. This gives the business a capital-light model, allowing it to generate pleasing cash flow.

The ASX retail share is implementing technology throughout its operations, including AI running the online chat interactions, which helps to lower costs and increase conversion. As the business gets larger, it expects its profit margins to increase, partly thanks to its fixed costs being spread across more sales.  

Temple & Webster continues to grow revenue at a strong pace. Between 1 July and 24 October this year, its FY25 revenue soared another 21%. Around 60% of orders are now from repeat customers.

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