A rally late last week and evidence from the BRC February sales data that non-food sales recovered after January’s snow hit helped general retailers rise above the All-Share index.
Like-for-likes across the industry improved by 2.2% in February and the total was up 4.5%, the BRC reported. However, brokers remained cautious.
Citi stuck to its underweight sector stance and warned: “We forecast a fading trend in household available cash across this year, driving our flat 2010 UK general retail like-for-like forecast.”
Investec observed: “The BRC highlighted the prevailing consumer caution towards discretionary purchases, which we believe is likely to increase in the run-up to the general election.”
The impending poll put food retailers in the spotlight following the weekend’s revelation that the imposition of VAT on food was being considered.
Oriel was optimistic that the controversy sparked by the idea would result in it being kicked into the long grass.
Citi took the same view and said: “The more headlines VAT on food makes in the run-up to the election, the more likely both parties will be forced to rule it out.”
Grocers underperformed the market, but Shore Capital issued a buy note on Tesco after an analyst trip to the grocer’s dotcom store in Aylesford, Kent.
Shore said: “On the trip management discussed the reasoning behind the move away from the low capital intensive model - picking from existing stores - which supported Tesco’s initial foray into online grocery shopping (and made it the only profitable operator to date), to a more capital intensive model and how the group aims to deliver satisfactory returns from the increased investment.”
Shore also had a meeting with Halfords’ management and rates the retailer a buy. The broker said: “We expect the recent acquisition of Nationwide to transform Halfords’ medium-term growth visibility and to move the business up a league into the double-digit growth camp.”
Arden also issued a buy note on Halfords and observed: “The Nationwide acquisition enhances Halfords’ defensive characteristics - an added attraction given the uncertain outlook for consumer spending over the next year.”
Department store group Debenhams, which issues a pre-close update on Tuesday, is on Singer’s buy list. The period covered includes that of snow disruption but the broker said: “Given the low weighting of January and February relative to the rest of the year, we are not overly concerned about weaker sales trends at the end of the second quarter so long as spring weather arrives to kick-start the season this month.”