Despite many retailers delivering impressive Christmas performances, store stocks - other than the grocers’ - were in deep freeze in a flat market.
Investors gave many updates a frosty reception and fretted that uncertainty in the year to come means retailers’ happy Christmas might be a last hurrah.
The biggest exception among the general retailers was JD Sports Fashion, which notched up a 6.6% increase in group like-for-likes over Christmas driven by its fashion fascias, Bank and Scotts.
Oriel, which had feared a lacklustre performance, admitted it had been wrong but stuck to its hold advice. “We wonder if management can continue to pull rabbits out of the hat forever,” the broker said. However, Numis rates JD Sports Fashion a conviction buy and upgraded its profit forecast 13%.
Sainsbury’s and Morrisons were both up as Christmas proved a cracker for grocers. Tesco rose on Tuesday after its seasonal update confounded the critics, but was flat over the week. Tesco is on Nomura’s buy list. The broker said the update should “lay to rest” recent concern about Tesco’s momentum. Jefferies rates Tesco a hold and observed: “While we are impressed with the performance, market share data suggests Tesco continues to lag two of its three major UK competitors.”
Among the generalists, Debenhams was out of favour even though its update was better than anticipated. Like-for-likes were affected by a shift towards proprietary brands but margin is on the up.
Panmure Gordon, advising hold, cautioned: “The retailer did not quantify the gross margin improvement and did not upgrade full-year gross margin expectations, leaving the market dissatisfied.”
However, Merrill Lynch was reassured by Debenhams’ update and maintained its buy stance. Merrill Lynch said: “This trading update should come as something of a relief as broker sentiment was very negative going into it owing to difficult trading comparisons and the perception of higher promotional activity, which turned out not to have been the case.”
A strong update from privately owned Matalan could have implications for quoted rivals including Debenhams, Marks & Spencer and Next noted Singer. “Last year Matalan turned over £1bn in similar product categories to these competitors and the changes being implemented are helping to attract a wider consumer base, including more AB and C1s.”
Buy N Brown, advised Investec after the home shopping group’s update. The broker increased its profit forecast 1% and said: “With the potential development of complementary revenue streams supporting its core home shopping strengths, the stock remains undervalued.”