After the party, the hangover. Retail’s rally proved short-lived and once again the sector headed south as food groups and general retailers alike underperformed the market.

DSGi led the chase to the bottom as excitement about potential disposals evaporated and worries set in. The retailer lost more than£180 million of its value in just one day as investors fretted about the prospect of increased competition. JP Morgan downgraded DSGi and poured cold water on prospects for a successful break-up.

Even Woolworths was down over the week, despite bid interest from a consortium led by Iceland entrepreneur Malcolm Walker and backed by Baugur (see below).

The three quoted grocers were all down as the latest TNS data showed the hard discounters, such as Aldi, continue to grow apace. However, broker Bernstein was relaxed and said industry growth was above historic levels and there was little evidence of pressure on margins.
Bernstein rates Tesco and Sainsbury’s outperform. JP Morgan prefers Morrisons to Sainsbury’s and said: “Morrisons has virtually no discretionary non-food exposure – something that is acting as a drag on Tesco and Asda’s sales.”

Separately, Tesco is thought to be preparing a£500 million sale and leaseback of up to 12 of its biggest stores through a joint venture with a pension fund. Proceeds would be used to cut the grocer’s debt.

Marks & Spencer unexpectedly decided to issue a second quarter update on October 2. Pali International believed the retailer wanted to get bad news out of the way ahead of November’s interims and said: “We think July was a poor month for M&S, in both food and clothing, and August has been no better, so much depends on how September goes.” Blue Oar visited M&S stores and reported signs of improved operational standards under the leadership of new food boss John Dixon. Blue Oar rates the retailer a buy.

Seymour Pierce upgraded fashion retailer Ted Baker from outperform to buy and said its strong trading has been overlooked. The broker argued: “The company should be a beneficiary of the trend for consumers going for brands and longer-lasting fashion, the significant potential for further growth through new store openings, the low rating and the relatively strong balance sheet.”

Blacks Leisure’s share price plummeted on Tuesday afternoon without any obvious reason. Broker Kaupthing said: “This appeared to be technical and whatever small overhang existed was cleared.” The shares ended up closing 12 per cent above their intra-day low. On Wednesday, Blacks’ new finance director Marc Lombardo took up his post.