May 29, 2018

Pegler’s market report – 29.05.18: Another poor week for the high street

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (29.05.18) Business section under the title Pegler’s Market Report:

Another poor week for the high street

Struggling hardware chain Homebase has been sold to retail turnaround specialist Hilco Capital for the nominal sum of £1. Its Australian owners, Wesfarmers, originally paid £340m for the retailer two years ago, but losses and other costs will bring its total bill to about £1bn. Industry analysts expect the restructuring will unfortunately result in store closures and more job losses on the High Street. Homebase has about 250 stores and 11,500 workers. Hilco is famed for its purchase of HMV, the music and entertainment products retailer, from administrators in 2013, and has revived the business, albeit with a reduced high street presence.

Marks and Spencer reported a big fall in annual profits as it announced plans to close 100 stores by 2022, a move which the retailer says is “vital” for its future. The store reduction includes 21 that have already shut this year, with 14 more locations confirmed last week. The locations of the other 65 closures are yet to be announced.

M&S said it would incur exceptional charges of more than £320m to cover the cost of shutting stores and expects another £150m of charges as the closure programme rolls on. The extra costs dragged pre-tax profits down 62pc to £67m in the year to March 31.

The once high street gem revealed further details of its transformation strategy, including more investment in its online offering and plans to build a new retail distribution centre.

In clothing, M&S said it is reducing the number of lines, aiming to buy more stylish products in greater depth, and emphasising value. In food, the plan is to cut prices and refocus on “more popular family product”.

Shares in Pets at Home fell sharply after the pet care and products retailer reported a rise in annual revenue but a drop in profits. Group revenue in the financial year to March rose 7.8pc to £899m. However, pre-tax profits tumbled 17pc to £79.6m, after competition from online retailers such as Zooplus forced it to cut prices significantly. The retailer insisted that the pet care market “remains resilient” with growth in pet products of about 2pc in 2017 and veterinary services at around 5pc.

There was better corporate news across the pond as sportswear giant Nike’s shares hit a new high after it was said it is close to a deal to acquire MLB (Major League Baseball) on-field apparel rights beginning in 2020 season. Analysts believe that the deal between the MLB and Nike is 80% complete and is likely to be announced at or around the All-Star Game in July. Baseball supporters are as fanatical as English footy fans when it comes to wearing their teams strip.

In economic news, Mark Carney claimed that households are £900 worse off since the Brexit poll. However, the Bank of England governor added that there could be a “sharp pick-up” in business investment when a Brexit agreement is struck.

By David Pegler, Brighton Capital Management