Next update and BRC data hits retail stocks

While the All-Share Index edged down and grocers outperformed, general stores fell steeply as investors took fright at toughening trading conditions and consumers increasingly preoccupied with restricting their spending.

Arden was sanguine about Next’s update. The broker said: “We don’t get the impression that things are falling off a cliff in terms of high street spending.

“The outlook for autumn is still uncertain, but if like-for-like sales stay reasonably solid then the lowly valuations in general retail are pretty attractive and the only problem is that frankly most things look pretty cheap.”

The sector’s de-rating prompted Arden to cut its Next price target from £24.50 to £23.00 and Kingfisher from 260p to 240p. However, the broker increased its target for

Dixons Retail from 28p to 30p, Dunelm from 390p to 415p and Kesa from 140p to 150p.

KBC Peel Hunt warned that retail share prices would struggle to tread water for the next two to three months.

The broker said: “We expect like-for-like sales to turn negative from September. Indeed from September comparatives toughen, while the build-up to Christmas is likely to be more restrained than last year.

“Taken in conjunction with the prospects for general strikes and negative news flow surrounding the public spending review in October, there is little reason to expect retail sales to perform well or for consumer sentiment to improve.”

Analysts at Numis declared themselves “amazed by the hysterical reaction” to Next’s “sensible industry commentary” and the fashion retailer is their most favoured large cap stock. Home Retail is Numis’s least favoured in that category. The broker observed, however, that among the big cap companies, “with market share changes likely to be marginal, stock performance is likely to be a sector call”.

JJB Sports was one of the few retailers still in fashion and was the week’s highest climber. Value investor Harris Associates, a longstanding holder of JJB stock, increased its stake to more than 17% to become the retailer’s biggest shareholder. Harris backed JJB’s management in its skirmishes with rival Sports Direct’s founder Mike Ashley last year.

Burberry boss Angela Ahrendts sold £3.4m of shares, including 94,000 to cover tax liabilities relating to stock awarded as part of the company’s performance plan.

Next week will bring more opportunities to gauge the sector’s health, with Kantar grocery data and the ONS retail sales figures.