The bad retail news of the last week from retailers ranging from Alexon to Kesa was counterweighted by success stories from store groups including Debenhams and Kingfisher.
The good performances helped general retailers strongly outperform the market over the week while food stocks, although also up, lagged the rise in the All-share index.
Hold Kingfisher advised Oriel. The broker said last week’s results were “undoubtedly impressive” but fretted about prospects and warned: “We are concerned that wider economic travails may come to roost, with the UK far from being out of the woods and the French economy showing continued signs of slowing dramatically.”
Another retailer with exposure to France, electricals group Kesa, was out of favour following a weakening French market and failure to announce the sale of troubled British chain Comet. Investec, which rates Kesa a hold, said: “Forecasts are likely to come down, even from our low-end numbers, hence we place our forecasts, target price and recommendation under review.”
Ocado edged up despite some brokers’ ongoing concern about the rate of growth and margins. Shore Capital, an Ocado bear, noted: “If there is not a material pick-up in trade down the line plus stepped adjustments to margin, shareholders should not be surprised if they are called to provide further capital to fund the ongoing development plans of management.”
JPMorgan Cazenove, which has a neutral stance, said: “Despite a couple of quarters of slower growth we remain optimistic on the longer term Ocado investment case.”
JD Sports, which reported on Wednesday, is fair value according to Singer. The broker observed: “JD remains an extremely well managed business with both domestic and international growth potential. A strong balance sheet also gives flexibility and firepower.”
Buy Asos advised Numis, following a visit to the etailer’s new Barnsley Warehouse. The broker said the visit showcased “a highly organised operation which has, crucially, raised sales capacity to £600m now and £1.2bn when fully racked”.
Debenhams was in demand after reporting that full-year profits would exceed expectations but Arden is a sceptic on the department store group. The broker cut its price target from 66p to 60p, reasoning that Debenhams does not trade a sufficient discount to retailers such as Marks & Spencer and Next.
There was speculation as Retail Week went to press that Tesco will launch a new price offensive next week. Shore Capital believed there would not be a full price war and said: “If Tesco started a price war, by which we mean significant gross margin investment and a significant downgrade to short-term earnings at least, we would not be recommending the stock on our buy roster.”
Next week retailers reporting include menswear specialist Moss Bros and entertainment group Game.
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