Retail climbs but fails to match the market

After the sell-off following its first-half results, online grocer Ocado was the week’s biggest winner, helped by director share-buying. HMV was the big loser as analysts pondered its recovery prospects.

Although retailers such as Debenhams bucked the gloomy trend on the high street, concerns remain about prospects and valuations even though retailers are underperforming the market.

Broker Numis said: “Despite the historically low valuations, we are cautious given the downside risk to earnings and the limited near-term earnings growth potential, and expect to see sector share prices make little progress this year.”

The pressure on shoppers’ spending power was evident in the latest BRC-Nielsen shop price inflation data.

Shore Capital warned: “Overall, inflationary pressures can be expected to eat into consumers’ purses and wallets for a few quarters yet, may even deteriorate further, before tailing off in 2012.”

Sports Direct surprised with the £7m acquisition of a majority stake in fashion retailer USC from tycoon Sir Tom Hunter. Sports Direct has now established a premium and luxury lifestyle division as it pushes into new business fields. Broker Singer said the deal gives Sports Direct “entry into the fashion and luxury end of the clothing market at a low price”.

Kesa shareholder Knight Vinke dismissed speculation that it was opposed to the group’s potential sale of Comet.Possible buyers are casting their slide-rules over Comet but some of the interest is understood to be very tentative as they scratch their heads about whether they could turn the electricals retailer around.

Elsewhere in electricals, Dixons chairman John Allan bought a tranche of shares and bonds. Arden observed: “No doubt this is his way of saying that there is no doubt about Dixons’ ability to repay the bonds next year, etc, despite the doubts about Dixons’ weak trading and balance sheet.

“The only bad news is that this means that Dixons can’t be in active bid talks with Best Buy, despite recent rumours, because if they were he’d be an insider.”

Marks & Spencer’s update next week will be a key opportunity to take the sector’s temperature. The retailer is one of Espirito Santo’s

‘silver bullet’ stocks. The broker argued: “Increased capex, product rebranding and merchandising will complement improved efforts in international and online, driving the target of £1bn to £1.5bn of additional sales and, importantly, returns.”