Although BRC sales data for May revealed a 0.8 per cent dip in like-for-likes, brokers took comfort in the fact that the fall was not worse and at the prospect of easier comparisons later in the year.
KBC Peel Hunt said: “With comparatives weakening over the rest of 2009 and no obvious threats to underlying disposable income at this time, we expect to see the sector deliver a level of earnings stability.”
Numis noted: “Contingent on the impact of unemployment and a rising savings ratio, the easier comparatives continue to leave earnings per share risk to the upside.” The broker said smart stock picking would now be crucial and advised adding Dunelm, taking profits in Home Retail and holding Halfords.
Halfords reported its first sales decline in 20 years, which it said was indicative of the harshness of recessionary conditions. However, it posted an adjusted pre-tax profit rise of 2.4 per cent to £92.4m. Chief executive David Wild said consumer confidence and the economy remain fragile but maintained: “There are clear indications that Halfords is well positioned to deliver further earnings growth in the year ahead.” KBC Peel Hunt, advised buy and said: “Halfords offers ongoing organic growth in the UK, with scope for mezzanine expansion and new stores.”
UBS reiterated its buy advice on Carphone Warehouse after last week’s preliminaries. The retailer will complete the demerger of its operations by July next year at the latest and UBS was pleased at “some signs of improving trends in the fourth quarter” such as lower churn. The broker has a price target of 200p.
Buy JD Sports Fashion advised Investec after Monday’s update showed a 1.7 per cent group like-for-like advance over 17 weeks. The broker said JD has consistently outperformed its peers and the update “continues this positive trend, notwithstanding some cautionary comments on the gross margin outlook”.
Investec raised its Next price target from £14.40 to £16.80. The broker argued: “We see Next as more defensive than other large cap retail stocks and yet the shares are still trading on a substantial PE discount to the sector average.”
Quirky fashion retailer Ted Baker updates on Tuesday. After visiting London stores, broker Singer believes this season’s ranges are selling well and benefiting from tourist spending. Singer has a target price of 405p for Ted Baker and believes next week’s statement could be a catalyst for moving the stock towards that level.
Home Retail was expected to update as Retail Week went to press. The retailer’s share price advanced last week in the wake of rival Kingfisher’s strong update but broker Pali rated Home Retail a sell and said: “We still think that Home Retail’s profits will fall a long way in 2009/10, along with the dividend.”