Retail stocks headed so far south last year they neared the stock market's equivalent of the Antarctic. As the January reporting season kicked in it brought news of like-for-like sales declines but in many cases met admittedly low expectations and there were hopes of a thaw in attitudes to the sector.


Citi stuck to its negative stance on non-food retailers but conceded that on its analysis “the downside for the sector now looks more limited, especially on a relative basis”.

Even Marks & Spencer's sales slip was welcomed by some brokers as having been better than feared. The retailer's plan to close underperforming shops, cut jobs and axe costs helped sentiment.

Seymour Pierce acknowledged M&S's update was “poor” but upgraded the retailer from sell to hold. “At these levels there is, in our view, more upside than downside,” the broker said.

Panmure Gordon, advising buy, said: “The cost reductions are much, much bigger than we have ever seen before and give the company a huge war chest to survive current difficult conditions.”

Investec, recommending hold, harboured reservations. The broker said: “The underperformance of general merchandise relative to the market, despite additional cost savings, suggests that both the sales and margin outlook are worse than we had previously modelled.”

Debenhams confounded sceptics with a better than expected seasonal performance, but brokers were inclined to wait and see whether the retailer will organise a rights issue. Pali International said: “We are nervous of a dilutive equity raise in the offing, but retain a neutral stance.”

Numis noted: “While recognising the operational improvements the business has achieved, we continue to sit on the sidelines with the uncertainty over the debt dominating the investment horizon.”

Next's Christmas update led to a 10 per cent share price rise and prompted Teathers to increase its full-year profit forecast by 5 per cent to£436 million, but the broker retained its hold advice. “Clothing is likely to be a tough market and Next's customers are in the eye of the storm.”

Blue Oar observed: “Next has proved beyond all reasonable doubt that because of its controls and commitment to preserving margins it can deal adequately with whatever the retail market throws at it,” it said.

Buy Blacks, said Singer Capital Markets. The poor performance of Blacks' boardwear division will drag profits below expectations but the retailer is confronting the problem and may exit the category, concentrating on its outdoor chains. “Any exit, even if it were attached with a dowry, would massively transform the valuation,” said Singer.

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