Problems afflicting iconic US financial institutions Fannie Mae and Freddie Mac showed that the credit crunch is still in full swing while in the UK soaring inflation and dwindling retail sales sparked an equities retreat.
The FTSE 100 index closed on Tuesday at its lowest point since October 2005, although retailers outperformed the All Share index over the week.
June’s fall in retail like-for-likes, reported by the BRC, added to the bearish mood. Investec noted: “A pall of gloom covers virtually all product areas, despite the best efforts of widespread discounting to stimulate consumer interest.” JP Morgan said: “Overall sales have not yet fallen off a cliff, which, for us, is one of the big problems with investing in the sector right now – having only just started the downturn, it is difficult to see the light at the end of the tunnel.”
Panmure Gordon showed little appetite for food retailers. The broker reiterated buy on Tesco, and sell on Morrisons and Sainsbury’s. It argued: “‘Food is defensive’ is the mantra and this is so untrue it is barely worth discussing. Yes, people have to eat, but they don’t have to buy food from the same store, they don’t have to spend as much as last year and they don’t need to shop from a food retailer’s non-food range.”
Even the mighty Primark showed it was not immune to the downturn. Although sales rose 14 per cent in the third quarter, like-for-likes – which were not detailed – were “held back by weak trading in April”, the retailer said. However, a flat like-for-like performance would have been the envy of harder-pressed fashion groups. Landsbanki said: “Despite the slowdown, we still see Primark as a significant thorn in the side of the quoted clothing retailers, offering consumers an opportunity to trade down that was unavailable in the last major retail downturn.”
Luxury fashion retailer Burberry stood out for delivering good news. First-quarter retail revenue rose 14 per cent and 4.5 per cent like for like. Citi, advising buy, said: “We argue that Burberry will outperform the broader luxury market in 2008.”
French Connection has taken back the 50 per cent stake that it did not own in its Japanese joint venture. French Connection boss Stephen Marks said: “This consolidates our position in one of the most important markets in the region.”