Subdued trading and inflation hits grocers

Shore Capital took its red pen to expectations on all three quoted grocers but is most concerned about Sainsbury’s.

The broker explained: “Sainsbury’s is the most vulnerable to subdued trading conditions as, with like-for-like sales below plan, the much anticipated positive operational gearing cannot emerge.”

Shore rates JS a hold “reflecting its recent weakness, asset support, yield and real or perceived bid support.”

Bernstein described Tesco’s Kantar showing as “somewhat disappointing” but took a sanguine view. The broker said: “Tesco’s higher exposure to non-food goes some way to explain this weakening, given the current consumer climate. High fuel promotion activity of competitors likely drove some share loss. However, we expect this to be short-lived.”

Department store group Debenhams unveiled a £650m refinancing which, said finance director Chris Woodhouse, will also significantly reduce interest costs. He said the deal in the present economic climate was “a testament to the continued strong performance of the business”.

Supergroup was the week’s big winner following last week’s results. Arden was pleased by the retailer’s focus on new product development and “the sheer scale of top-line growth” and concluded: “The shares still look very oversold, so the short squeeze can continue. We maintain a strong buy.”

Espirito Santo, however, rates SuperGroup a sell and cut its current year forecast to reflect increased costs. The broker said: “SuperGroup’s proposition is evolving rapidly and we do not wish to underestimate the longevity of the brand. However, we maintain our concerns regarding the rapid pace of roll-out, which we think will continue to give a bumpy ride for investors.”

Singer published a note on online retail, initiating coverage of N Brown with a buy rating and upgrading Asos from sell to fair value. “We conclude that online retail is the space to be in right now given the rapid demise of the high street and exciting mobile and international web developments,” the broker said.

Seymour Pierce downgraded Blacks Leisure from hold to sell following last week’s update. The broker said: “We maintain that Blacks is an attractive brand as shown by bid interest at the beginning of the year and the restructuring, in particular the CVA, will eventually lead to profitability. However, we are concerned about the debt situation.”

The main scheduled update next week will be from Carphone Warehouse, when there will be keen interest in anything said about the Best Buy joint venture.