The retail note - 21 March 2017
4 minutes to read
- Solid results from Sainsbury's and Argos. Combined like-for-like sales rose 0.3% in the fourth quarter ending 11 March 2017. Argos (+3.8% overall and +4.3% like-for-like) ostensibly outperformed its new parent (+0.1% overall and -0.5% like-for-like), although the latter’s figures were impacted by the sale of the pharmacy business and a strategic shift towards EDLP (every-day-low-prices).
- Positive performance figures from ScS. The upholstery retailer revealed a 14.1% rise in gross sales to £165.9m for the 26 weeks ended 28 January 2017. Revenue rose 14.6% to £157.9m, with like-for-like order intake up 2.7%. EBITDA improved by £1.1m to £0.1m and operating losses fell from £3.4m to £2.6m. Over the period, the business opened four new stores and now trades from 100 ScS stores and 28 House of Fraser concessions.
- The future of Jones Bootmaker is hanging in the balance. Owner Alteri Investors has reportedly filed a notice of intention to appoint administrators, although negotiations to sell the business are ongoing. Kurt Geiger has reportedly pulled out of the running to buy the business, leaving private equity firm Endless as the favourite to buy the footwear chain. Separately, fashion business Jaeger has been put up for sale, with The Edinburgh Woollen Mill Group (EWM) believed to be the frontrunner in the bidding war.
Stephen Springham, Head of Retail Research:
"Some pre-emptive perspective on Next’s full-year results, due for release on Thursday. Pre-tax profits are likely to come in at around £790m – possibly a shade over, but nevertheless at the lower end of previous guidance. Pre-tax profits are likely to be 4% lower than last year, with full price sales down by around 1.0%. Next Retail (perceived to be the high street arm, but actually one of the two components of a seamless multi-channel business) will see full-price sales down ca. 4%, while Next Directory (perceived to be the online arm, but actually the other component of a seamless multi-channel business) will see full-price sales increase by around 4-5%. And CEO Lord Wolfson will strike an extremely heavy note of caution over the state of the UK retail sector generally.
"Some pre-emptive perspective as to how the City and the media will react to the results: a good kicking from all sides. This may not necessarily be immediately apparent in share price movements, given that a lot of the ‘bad news’ should already be priced in on the back of the company’s post-Christmas trading statement. But the reporting generally is hardly likely to be positive – expect narrative along the lines of ‘former darling’ and ‘fall from grace’. And spurious over-use of the word ‘bellwether’. And calls for the retailer to take a hatchet to its store estate. And sweeping assumptions that Next’s less-than-positive update is indicative of growing malaise in UK retail sector at large.
"For what it’s worth, my very different perspective. Year-on-year growth statistics and missing / beating City expectations can be a very limited measure of a retailer’s actual retail standing and this is most certainly true in Next’s case. Expressed another way: if you have set the bar exceptionally high on the basis of past performance and marginally fail to clear it, you are still out-performing a lesser competitor who is still happily Fosbury-flopping over bars that are set at baby-heights. And earning plaudits in so doing.
"Even accounting for the profit decline, Next’s pre-tax margins are staggeringly high at 19%-20% - most retailers the world over could only dream of such performance metrics and levels of efficiency. In more general terms, Next was a key pioneer in multi-channel retailing and is still one of its premier exponents. Others talk the omni-channel talk, Next walks the omni-channel walk. As for Lord Wolfson’s caution – don’t confuse pragmatism and honesty with doom-mongering. He is one of the very best commentators on the state of the UK retail market, it is highly challenging out there and sometimes we need reminding of the fact.
"Of course, a sustained period of underlying sales and profit declines and market share losses is not the hallmark of a successful retail business and Next is no exception to this. Clearly, it has a lot of work to do – in very glib summary, it has maybe lost sight of some of its customers and needs to re-think and re-fresh some of its merchandise, whilst also re-establishing its leading credentials in multi-channel fulfilment. But it is still addressing these issues from a position of underlying strength, rather than weakness. As the sporting cliché goes: form is temporary, class is permanent".