General retail stocks headed south and underperformed the market, despite rising speculation that a raft of IPOs - including a £1.7bn flotation of fast fashion group New Look - looks likely in the new year.
Gloomy comments from top store chiefs, the handover of troubled Jessops to its bankers and the administration of part of Blacks Leisure’s operations all served as a reminder that the effects of recession on the retail sector are still being felt.
Investors who bought into Jessops when it floated for £160m will now share between them the princely sum of £100,000. Such upsets are likely to mean the prospective retail IPOs of 2010, such as New Look, Ocado and Pets at Home, are likely to face intense scrutiny before getting their floats away.
There was better news from Marks & Spencer, which comfortably beat second-quarter consensus expectations and reported that its full-year gross margin would fall by less than previously anticipated.
Women’s clothing retailer Alexon posted a pre-tax loss of £8.1m against profits of £6.9m in the comparable period. There was an exceptional charge of £9m - mainly onerous lease provisions. Turnover was down 11% to £77.7m but chief executive Jane McNally said the results were in line with expectations and overall performance was stabilising.
Attention turns to the grocers next week, when Tesco and Sainsbury’s report interim results and second-quarter sales respectively. Jefferies rates Tesco a buy, despite UK like-for-likes recently lagging the sector. The broker said: “While macro pressures remain an issue in Europe and the US, the valuation is low by historic standards and sales headwinds are unlikely to worsen.”
Oriel expects Sainsbury’s like-for-likes will have slowed but argued: “It retains strong momentum and with management continuing to be innovative - it has beefed up the promotion of Switch and Save of late - we think that the best bet within the sector is to switch out ofTesco into Sainsbury’s, or into the wider non-food sector, which looks set to see major upgrades in the near future.”
Leading non-food group Home Retail was out of fashion with investors after Credit Suisse took a bearish line. The broker raised concerns about Home Retail’s flagship Argos chain’s price competitiveness and feared it was increasingly reliant
on discounting.
Petrol-heads’ favourite Halfords updates next week. Buy, advised Investec. The broker said: “We believe a combination of better weather and more ‘staycations’ than last year will deliver a more robust second-quarter trading performance than previously expected.”
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