Electricals group DSGi was one of the winners, despite falling like-for-likes (see opposite) along with homewares retailer Dunelm, whose value credentials and expansion opportunities are likely to help it ride the downturn.
Broker Numis issued a hefty bearish note on the sector. Entitled The Shape of Things to Come, the research forecasts that retail sales will continue to fall until 2011, when they will start to recover in the second half.
Numis expects non-food like-for-likes to slide by between 6 and 7 per cent next year and between 4 and 5 per cent in 2010. “The noughties recession is shaping up to be longer and deeper than we had recently envisaged,” the broker said.
Mothercare, Asos and Tesco are Numis’s preferred retail picks. Those to avoid include Home Retail Group, Marks & Spencer, Carpetright and Topps Tiles, the broker says.
M&S’s shares tumbled to their lowest level in years as brokers advised investors to get out ahead of next week’s interims. Pali switched its stance from neutral to sell and cut its full-year forecast by£30 million to£640 million.
Similarly, Seymour Pierce reiterated its sell message and said: “After an indifferent summer season, the autumn ranges still do not look right, food is becoming a major problem, debt levels have significantly increased and management, in our view, will be forced to cut the dividend to shore up the balance sheet.”
Sports Direct said it still expects full-year underlying EBITDA of about£135 million, despite the hardest trading conditions it has ever faced. Seymour Pierce is reviewing its hold advice and said: “This stock is rated at 3.8 times forecast earnings, making it a cheap proposition. We do, however, remain cautious on the level of net debt.”
Panmure Gordon upgraded Sainsbury’s to hold as the first-half results approach. The broker said: “Most brokers are negative on this stock and we believe that the market will be pleasantly surprised by its interim results.”
N Brown stands out from the crowd because sales and profits are growing, noted Investec. “The strength of the company’s targeted customer propositions and management should ensure it delivers superior results to most of its peers,” the broker said as it reiterated its buy recommendation.