Sighs of relief that retailers’ Christmas performance was no worse than feared have helped store stocks rally in the new year, but some analysts fear optimism may be premature.

HSBC analyst Paul Smiddy is among them. He remains concerned about hits to margin, the impact of rising unemployment and the weakness of sterling, but upgraded WHSmith and Next to neutral and downgraded Kingfisher to underweight.

Pali analyst Nick Bubb noted: “High street sales have not yet fallen off a cliff since the new year… they soon will.” However, he expected a strong performance from Morrisons.
KBC Peel Hunt picked online meteor Asos as “recession resilient”, selected Topps Tiles as a recovery play and Halfords for the yield.

AIM-listed Asos was on Citi’s hold list after sales rocketed at Christmas. The broker said: “The results confirm Asos’s ability thus far to defy the downturn in the broader market.”

JJB Sports remained embattled as it revealed fees of£8.3m as part of a deal to secure lending and chief executive Chris Ronnie was suspended in the wake of his share ownership controversy. Singer observed that “any form of boardroom power struggle could be distracting” but said the stock is one to “watch very closely” because value may be restored by directors Sir David Jones and Peter Williams.

HMV surprised with news of a live music joint venture, including venues such as the Hammersmith Apollo, the acquisition of 14 former Zavvi stores and a share placing to fund the initiatives. Teathers stuck to its reduce advice. The broker is concerned about structural pressures such as the effect of the internet on stores.
Hold Burberry, recommended Numis. The retailer managed better than expected third-quarter like-for-likes and is making savings of£50m through initiatives such as closing its Rotherham factory with the loss of up to 290 jobs. Numis welcomed the initiatives but noted: “With the fall in global consumption yet to take full effect we remain on the sidelines following our recent downgrade.”

Buy Home Retail, said Investec. Last week’s update revealed worse than expected gross margin for the group, but consensus expectations will be met. The broker said: “We continue to prefer Home’s more diversified product offer, value model and management to other, bigger-ticket peers.”
Seymour Pierce paid a company visit to Debenhams. The broker reported that “management has done a great job of resuscitating the brand” but advised sell because of ongoing unease about the debt carried by the retailer.

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