The inside word from the City: Retail

Pain on the high street

Tue, 15 Apr 2008 09:39:43 GMT

The sun is shining, the sky is blue and, if Cityblogger ignores the airborne piglets flapping their way past his home office window, he could (almost) believe he is in the midst of a bull market. Tiddles is sunning his somewhat rotund belly on the shed roof without a care in the world. Well, true, nothing new there...

After a dismal day yesterday, the FTSE 100 is up just under one per cent, breaking through its five-session losing streak, oil prices have hit another high and, Tesco’s jolly full year results would have us believe that the retail sector is bouncing with health! The retail monster says underlying profits before tax were up 11.8 per cent last year to £2.8bn and that all important like-for-like sales (excluding petrol) rose 4 per cent in the first five weeks of the new financial year. As Nick Coulter, analyst at Numis Securities, quipped in his note to investors this morning, “some crisis!”

And yet sales figures from the British Retail Consortium paint a very different picture. The BRC says like-for-like retail sales fell in March for the first time since July 2005, dropping 1.6 per cent. Clothing and footwear sales were the worst for eight years but that food sales also fell. Comparisons with last year were made difficult because of the unseasonal cold weather and the change in school holidays, but worryingly the BRC warns that “consumer confidence has fallen to new lows” with shoppers unwilling to hand over cash for major ‘big ticket’ items. Sports retailer John David Group also reported healthy full year results today, but complained in its outlook statement that current trading conditions are tough.

But Tesco’s continued strong performance shouldn’t surprise anyone. The retailer is precisely the kind of place the stricken shopper, battered by rising energy costs, is likely to head in an economic slowdown. Similarly, the US discount retailer Walmart is also doing well right now and propping up America’s retail sales.

Meanwhile, Gordon Brown is meeting the heads of major banks and mortgage lenders to discuss what can be done to tackle the credit crunch. Let’s hope they can come up with something more substantial than the occasional cash injection into the money markets, and he can persuade them to start lending to each other again!

But hold onto your hats. With big US corporates set to report results this week, including Johnson & Johnson, JP Morgan and Capital One, City insiders expect more bad news to come – following US bank Wachovia’s losses yesterday. Oh joy!

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Marks loses its spark

Wed, 09 Jan 2008 12:37:43 GMT

Cityblogger has returned from his Christmas retreat and bids a happy and prosperous New Year to you all, whatever hardships the economic prophets of doom claim are lurking around the corner.

Despite fears that his Christmas stocking would be filled with little more than coal and the odd shrivelled satsuma, Cityblogger was fortunate enough to be in receipt of some decent presents for once, including a fistful of retail vouchers. So, braving the unwashed hoards, he descended upon the sales in search of New Year bargains.

After perusing the delights of the local shopping centre, he was shocked to witness the horrors of his local M&S - normally the height of style and decorum. Grotty looking clothes were strewn everywhere like discarded dish cloths and grown women wrestled over a mangy-looking fake fur coat. The resemblance to the apocalyptic environment of I Am Legend was unmistakable. Twiggy Lawson had left the building.

Cityblogger hoped this was a little local problem. After all, the retailer has done little wrong after fighting off the unwanted attentions of Kate Moss’s new BF Philip Green and getting its ranges right again. And Stuart Rose was recently knighted. But could it be its run of good fortune has, like Cityblogger’s motley collection of socks, gone thread bare?

Certainly, the shares tanked more than 17 per cent this morning following a howler of a third quarter trading statement/profit warning. Like-for-like sales in general merchandise dipped by 3.2 per cent, the lowest for 18 months, and even food like-for-like sales fell by 1.5 per cent.

Stuart Rose complained to the Today Programme on Radio 4 that “UK businesses are facing a real crunch”. He claims all retailers will be suffering this year due to the consumer spending slowdown and that they have “little ability” to put prices up.

The doomsayers are again talking the retail sector down as a whole. Oriel Securities downgraded its recommendation on M&S shares to sell. Analyst Eithne O’Leary, called the profit warning “shocking” and fears it could “destabilise the sector”.

Jose Marco, analyst at Numis, similarly put his ‘add’ recommendation on the stock under review, although he is more optimistic, arguing that store modernisations and growth from Simply Food should boost profits. But he cut 2008 profit forecasts to £1025m from £1095m.

When the going gets tough, the tough go shopping, so the saying goes. But will this be the case on the UK high street? Cityblogger has his doubts. The question is whether the retailers woes will sway the Bank of England in its interest rate deliberations tomorrow.

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