The retail note - 11 April 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- Very robust performance from JD Sports. Preliminary figures for the 52 weeks to 28 January 2017 showed a 31% surge in total revenue to £2.4bn. Operating profit rose 55% to £246m, whilst profit before tax increased 81% to £238m. The Sports Fashion division reported a 30.8% rise in overall sales and a third consecutive year of double-digit like-for-like growth. The Outdoor division saw revenues rise 27.6% and delivered an operating profit for the first time.
- Improving performance at Mothercare. Q4 figures for the 11 weeks to 25 March 2017 showed a 4.5% rise in UK like-for-likes, in part driven by online sales growth of 13.6%. During the period, Mothercare opened 144 international stores and closed 116, ending the quarter with 1,338 international and 152 UK stores. Ten transactional websites also opened during the year, with the business now trading online in 21 countries.
- Jaeger’s administration has been confirmed, putting 46 stores and 63 concessions and some 700 jobs at risk. Edinburgh Woollen Mill has been touted as purchaser of the business, but this has yet to be confirmed. A victim of long-standing miss-management and a chequered ownership history, as much as a highly competitive womenswear market.
Stephen Springham, Head of Retail Research:
Even the forces of astronomy are conspiring against the UK retail sector. The timing of Easter this year undoubtedly played a significant part in the lacklustre retail sales figures from the BRC for March. According to the BRC, UK retail sales decreased by 1.0% year-on-year on a like-for-like basis. Total sales fell by a more modest 0.2%. Over the three months to March, food sales dipped 0.2% on a like-for-like basis and increased 1.2% on a total basis. Non-food retail sales in the UK declined 1.1% on a like-for-like basis and 0.8% on a total basis.
Likely media interpretation: clear evidence of consumers reining in spending; growth in food sales driven purely by price increases; matters will only get worse as the gap between inflation and wage increases widens; universal distress on the high street; raft of retail failures on the way. In fairness, this has been the underlying media narrative ever since Brexit, but until now there has hardly been any evidence to support an essentially one-eyed, agenda-driven view.
It’s always dangerous to read too much into one month’s retail sales figures, all the more so when Easter timing distortions are involved. And especially this time around - last year Easter straddled the end of March, the year before it was in April. In theory, March 2015 should have been a tough comparable because of the timing of Easter last year, but in the event it was weak (flat overall, -0.7% like-for-like). Rather than blithely dismiss these latest figures as an Easter-blip, what we have is a very confusing situation – weak figures against a comp that should have been strong, but wasn’t. Read of that what you will…
I’m confident that April’s figures will be much stronger. Firstly, the comparable from last year is again benign (flat growth overall, -0.9% like-for-like). Secondly, there should be a considerable boost from a complete Easter contribution (and retail sales traditionally see more uplift when the Easter Bank Holiday falls later in the year). Thirdly, on the evidence of last week-end, the weather is finally starting to play ball and this will always have a positive impact on retail sales, if only in the immediate term.
But keeping a strictly two-eyed, non-agenda driven view of the market, it would be wrong to assign any more weight to positive April figures than it is to negative ones in March. We have stressed the pitfalls of getting a good read on underlying performance of the UK retail sector in the early months of this year. Weak January - strong February - weak March (with mitigating circumstance) - strong April (with caveats) is neither a consistent picture, nor a clear direction of travel. Don’t expect the rest of the year to be any less erratic.
In the more immediate term, the moon may have conspired against the March figures. Let’s hope the sun more than counterbalances this in April and beyond.