Retailers claim Christmas victory but sector keeps falling

Updated 15th January, 1415 pm

The last few firms in the UK’s challenged retail sector are releasing updates covering the all-important Christmas season this week.

Whilst none expect a sustained rebound, many suggest relatively positive performances have enabled them to stop the rot.

But are they getting ahead of themselves?

To be fair, of the 27 large-to-medium-sized retailers that have reported Christmas season trading, including listed and unlisted fashion firms (ASOS, Fat Face) supermarkets (Tesco, Sainsbury’s) department stores, (Debenhams, House of Fraser) and online kitchen appliance firm AO World, only 8 missed profit expectations badly.

Discounts at Game and Argos went badly wrong

The latest retailers to see massive discount drives explode in their faces include Argos owner, Home Retail Group, where sales stagnated, despite huge ‘Black Friday’ price cuts, that led to a 45% sales surge at Argos for the day. Home Retail’s shares traded as much as 8.5% lower on Thursday as investors reacted negatively to the margin impact from its promos.

A day earlier, video game shop chain Game Digital Plc., became the retailer which suffered the worst one-day share price loss in reaction to a Christmas trading update.

Game’s stock nosedived 56% at its worst, after it said heavy competition over the holiday periods pressured the firm into unprecedented price cuts and the bundling of games with consoles that slammed margins.

Boohoo.com, M&S, Debenhams, and Majestic Wines, also announced disappointing sales results, even if sales just fell moderately in some cases, that was still enough to send their shares sharply lower on the day of their results.

All other firms, including recent laggards among the UK’s big, established grocers, which still reported like-for-like sales falls, just not by as much as feared, saw their stocks rise, sometimes by record amounts.

Tesco, for instance last week said same-store sales, fell 2.9% in the 19 weeks to 3rd January, above expectations and much better than the 5.4% sales fall seen in Q2.

This sent its stock 15% higher, its biggest one day gain since 2008.

On Wednesday, SuperDry fashion brand owner SuperGroup Plc. said in its statement covering the 11 weeks to 10th January that same-store sales grew 12.4%, with total retail sales up 17.8%.

This bounce back from a 4.2% same-store sales fall in the firm’s half year lifted the stock 10%; though it’s still 43% lower on a 52-week basis.

Discount frenzy boosts ‘Big 4′

But what retailers were not so vocal about, was the fact that rising sales during the holiday season and beyond can largely be attributed to extensive discounting.

Sales during a 12-week Christmas sales period measured by retail sector monitor Kantar Worldpanel, represented the fastest growth seen since August 2014, rising 0.6% compared with the same period during the year before.

But Kantar also noted the pressure on prices that intensified throughout last year has not abated, with like-for-like deflation of 0.9% during the 12 weeks ending 4th January, another new record low.

A large part of this deflation is being put down to “high levels of promotion”, said Kantar, attributing 43% of consumer grocery spending alone to ‘deals’ of some kind.

The entire UK retail sales complex, continued to deflate in December, according to The British Retail Consortium’s monthly retail sales figures, coming in 0.4% softer in December year-on-year on a like-for-like basis. Economists polled by Thomson Reuters had on average forecast sales growth would actually rise during the month by 0.7%.

Similarly, the FTSE 350 General Retailers Index which includes many mentioned above, though largely excludes major UK groceries, advanced strongly from a low at the end of a week ending in mid-October, but has struggled to rise since the beginning of this month. The index is falling during the weeks in which these retailers are announcing how they did over Christmas.

By contrast, the FTSE 350 Food and Drug Retailers Index, which contains just six stocks, Tesco, Greggs, Booker Group, Ocado, Sainsbury’s, Morrisons, has risen for five straight weeks including the one ending 19th December.

This still spotlights the current buoyancy of the ‘Big Four’ food grocers and their rivals amid widespread price cuts.