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UK Retail: So far, so….not so bad

A month ago I wrote about the raft of UK Index Retail/Consumer companies publishing trading updates in Jan. This was important, in the context of a widely traded and changing sector which is shifting more and more online and consumer confidence at risk of Brexiteers. It also followed a downbeat statement from Primark-owner AB Foods and a profits warning from ASOS. Not the best of messages ahead of the key Christmas period.

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We’re half way through my list (see right) with some inevitable disappointments (some shares down 12-32% on the day) but confined to the smaller, already troubled, names.

The big guns have done OK. Everyone’s seems to agree: it’s not been that bad. In spite of all that late December doom and gloom. Discounting continues to hamper margins, but things could have been worse.

Next, with its significant bricks and mortar presence, traditionally opens the Christmas update season. It has a chequered history for January updates with poor updates in 2016 and 2017 (profits warnings). This year, however, it scored a second consecutive positive update (shares +4% on the day). Full year profits guidance was trimmed but this was expected. Sales growth was better and the outlook and share buyback plans boosted sentiment.

Elsewhere in Fashion, JD Sports expected “profits at the upper end of expectations” (shares +6%).  In contrast, Boohoo fell 9% after it trimmed its profit guidance. ShoeZone climbed 12.3% by promising a special dividend.

Ted Baker soared 31.2% after sales and margins held up to Christmas discounting. Discounting, however, forced Quiz (shares -32%) and Footasylum (-12%) to issue profits warnings.

Dunelm (+15.4%) said it expected profits ahead of expectations. Halfords (-22%) cut profits guidance due to mild weather and weak consumer confidence. Christmas trading failed to help Card Factory (-14%) boost like-for-like sales growth, and it expects another difficult year in 2019.

Department store John Lewis’ (not listed) weekly sales were good, both into and out of New Year. Its Christmas update, however, failed to inspire. Debenhams (shares -14.5%) just seems to go from bad to worse, with even online sales growing at a rather pedestrian rate.

Matters were made worse for Debenhams by Sports Direct owner Mike Ashley (he owns a 29% stake) ousting the Chairman. Marks & Spencer continues to struggle, with a disappointing Christmas period, and “difficult markets” (shares -1.1%).

Morrisons’ was the first supermarket, leaving a sour sector taste by missing expectations (shares -3.2%). Sainsbury and Tesco, however, fared well (+2.2%). This despite the German discounters continuing to take market share keeping the sector fiercely competitive. We also await news from the UK Competition Authority. Will it permit a SainsburyAsda merger, knocking Tesco from its #1 market share perch?

A standout for me, so far, is anything to do with pure-play Food/Drinks, with updates from Greene King, Greggs, Majestic Wine and Mitchells & Butler also being well received (shares up an average of 6.4%). We still have another 8 names left to report over the second half of the month, but so far so good.

The Housebuilders, a very Brexit-sensitive and consumer confidence-related sector of late, have also pleased. Only Taylor Wimpey and Persimmon have reported thus far, however, but average +6% share price reactions echo food & drinks. Barratt Developments has yet to confirm a trading update, but it reports interim results in early Feb, along with Redrow and Bellway.

We still have plenty of companies left to report: 29 last time I counted. Good sales growth doesn’t always translate to profits. Largely positive share price reactions don’t mean everything is rosy. The industry is changing; many companies remain under pressure.

A big share price jump can be a result of too much bad news having been priced in. The subsequent update can reset expectations if recent trading and the outlook simply aren’t quite as bad as as expected.

Whether you have a position in one name or several in the exciting UK Retail Sector. Whether that position is big or small. Whether it is doing well or faring badly, make sure you stay up to date with what companies are saying, and how their shares are trading.

For the latest trading opportunities in the UK Retail Sector get access to our research Gold Pass and let us highlight to you hand picked ideas for share price breakouts, ranges, momentum and rebound candidates.

Mike van Dulken, Head of Research, 16 Jan 2019

 

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.


Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

Prepared by Michael van Dulken, Head of Research

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