General retailers look a better bet than grocers

Analyst Jonathan Pritchard said that food retailers are “yielding significantly less than the general retailers in terms of free cash flow” and that their earnings growth is forecast to grow at half the pace of the general retail sector.

He cited the supermarkets’ ambitious space growth programmes as potentially hitting returns. Late last year Evolution analyst Dave McCarthy said the grocery sector is at the centre of a perfect storm with the biggest expansion race in their history, which in the long term could hit returns and like-for-like sales.

Pritchard said worries over returns and “no obvious catalyst for upgrades” mean it is better to allocate funds to non-food retailers at present. WHSmith and Sports Direct are among the broker’s buy recommendations.