January 17, 2017

Pegler’s market report – 17.01.17: Record gains and plenty of retail news

As published in the Brighton Argus (17.01.17) Business on page 21 under the title Pegler’s Market Report:

Record gains and plenty of retail news

Britain’s benchmark equity index continued to set all-time highs and record straight days of gains. Over the last week there has been a flurry of results and updates from the retail sector.

The John Lewis Partnership has warned that it will cut its much-celebrated staff bonus this year in order to brace for the impact of a weaker pound and ramp investment in its online operations in the wake of rapidly changing shopping habits. The employee-owned retail group behind John Lewis department stores and upmarket grocer Waitrose said it expects the bonus to be “significantly lower than last year”. This is despite the retailer expecting pre-tax profits to be higher than in 2016 as a result of lower pension charges. The move would mean the staff bonus has fallen for the fourth year in a row.

Online fashion retailer Asos said it would speed up the pace of its infrastructure investment as it predicts sales will grow by almost a third this year following a stellar Christmas trading period. International sales rose by 52pc to £362m in the four months to December-end, while UK sales rose by 18pc to £244m.

Marks & Spencer, who reported a long-awaited rise in clothing sales, had a bit of a rollercoaster ride. Despite the generally upbeat trading update, industry analysts highlighted that it was too early to call a victory and cautioned a potential slowdown in consumer spending expected in the year ahead. They continued to highlight that the big high-street player is playing catch up from a difficult mid-market clothing position and with little medium-term visibility over profits or cash generation.

Analysts were also not that positive on Dunelm, although it enjoyed modest sales growth in the key Christmas trading period. Like-for-like sales in the 13 weeks to the end of December edged up just 0.2pc. Dunelm blamed an accounting change for a shorter Christmas sale period this year – six days instead of the previous year’s eight.

Baby goods retailer Mothercare said third-quarter sales in the UK returned to growth, helped by a rise in online orders. JD was also on the up as the sports retailer continued to defy even the toughest of comparatives and posted growth of 10pc for the 49 weeks to January.

Britain’s biggest retailer Tesco reported a 0.7pc rise in underlying Christmas sales in its home market, capping a year of recovery with a solid performance over the key festive period.

Finally, another super result from SuperGroup, the retailer behind the popular brand Superdry, which announced a 10.4pc rise in its half-year pre-tax profits. The trendy brand enjoyed a superb festive period with revenues jumping by more than 20pc as the company reaped the rewards of weak sterling and continued its store expansion programme.

By David Pegler, Brighton Capital Management