General retailers held their own in the run-up to Wednesday’s results from fashion groups French Connection and Next, which both made bullish noises about performance.
Next boss Simon Wolfson, who created a stir with apparently bearish views when he last updated, said as he issued interims he did not expect a double-dip recession nor a meltdown in consumer spending.
And French Connection founder Stephen Marks reported that the business was “back on track” following restructuring and a leap in first-half profitability.
Investec maintained its buy recommendation on Next, although interim profit was just shy of the broker’s forecast. Investec said: “Longer-term outlook comments suggest potential shareholder returns of 9% to 15% per annum, which we believe should support a higher valuation than the current level.”
At the other end of the fashion scale, Primark expects full-year like-for-like growth of 6%. Although the rate of growth has slowed, Panmure Gordon expects a 33% rise in EBITA to £335m this year. A margin squeeze due to cotton and freight cost increases will affect results next year.
Marks & Spencer was in favour as brokers speculated that trading is holding up well. Oriel noted: “We believe that M&S is benefiting from a revival in spending within its customer base. Having survived the recession, M&S’s slightly older customer base is being tempted by good-quality product that is keenly priced.”
Matrix observed that, if M&S’s update next month shows “anything other than a very sharp fall” in like-for-likes compared with the first quarter, then upgrades to consensus forecasts are likely.
Investec toured M&S’s Marble Arch flagship with management and reported that “while footfall was hardly heavy, a trend towards trading up and better-balanced autumn ranges should allow M&S to anniversary tough comparatives without suffering a like-for-like sales downturn.”
Home Retail Group was out of fashion and out of the FTSE 100. Flagship chain Argos suffered a 5% like-for-like sales drop in the second quarter and warned that full-year profits would be at the bottom end of expectations.
Numis, which rates the retailer a hold, said: “While the stock is our least-favoured large cap retailer, we would hesitate to be short, given the low rating, share buybacks and dividend yield.”
The latest Kantar grocery data revealed “very weak” industry cash sales growth, despite food price inflation, said Jefferies. The broker said that Sainsbury’s was benefiting from its store opening and extension programme.
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