Bad news hammers store stocks yet again

Dixons and HMV were the biggest fallers following their profit warnings, with Dixons’ misery being read-through to arch-rival Kesa too, while gloomy updates from Mothercare and Laura Ashley hit their shares.

“Given the weakness of Q1 we sense a large degree of concern on behalf of retailers as to the UK consumer’s mindset,” said broker Shore Capital.

HMV’s third profit warning of the year was accompanied by news of an extra two months in which to renegotiate its banking covenants. But the City wasn’t impressed and the shares fell another 20%.

In a note entitled ‘Living on borrowed time’, Oriel Securities estimated that like-for-likes must have been falling by at least 20% in the past month. “The economics for a buyer of the company now make very little sense even with the share price at low levels,” the broker said, recommending sell.

Mothercare’s international business continued to perform strongly but the UK business got worse. “Sentiment has hit a new low as a result, along with the shares,” said Singer Capital Markets, advising buy. It added that “major surgery is now required to stabilise returns in this Jekyll and Hyde situation”.

One retailer bucking the trend with a better than expected update was Marks & Spencer. Its shares rose in early trading on Wednesday following a fourth-quarter update that showed an increase in like-for-likes on an underlying basis and growth in market share in both food and general merchandise.

Home Retail was a riser over the week after US private equity firm Madison Dearborn Capital Partners emerged as owner of a 4.25% stake in the Argos and Homebase owner. Seymour Pierce, advising hold, couldn’t get excited by the news, saying “it takes a leap of faith, in our view, to invest in a company on speculation when Home Retail’s profits have declined each year over the last four years”.

Following its successful CVA, JJB released plans to raise £65m through the issue of new shares. The fundraising is being supported by JJB’s major shareholders. It plans to invest the new funds in improving its stores.

Food retailers did better over the week, rising almost in line with the market as a whole. Morrisonswas the biggest riser, and was named by broker Bernstein as its top pick in the retail market. The broker said investors are overlooking the attractions of the company, adding “we see numerous ‘self help’ measures that should support roughly 15 basis points per year of operating margin expansion.”