UPDATE: Retail shares slip after ‘Dull Friday’

<p>Updated Friday 27th November at 1830 GMT   Don’t expect to see much ‘post-Black Friday’ entertainment on YouTube this year.   The Internet won Most information is […]</p>

Updated Friday 27th November at 1830 GMT


Don’t expect to see much ‘post-Black Friday’ entertainment on YouTube this year.


The Internet won

Most information is anecdotal so far, but it looks like the customer hysteria, occasional brawls and over-discounting by retailers seen last year have been less common this year.

And retail researcher FootFall estimated Black Friday in-store numbers could be up to 4% lower than 2014.

The other clear trend this time was a much bigger-than-expected shop online, one outcome we suggested was likely in our original article.

This might help explain a strong lead by shares of online-only ‘white goods’ and consumer electronics retailer AO World which closed 3% higher.

Bear in mind though that its stock was also probably showing a natural retracement after losses of as much as 20% in two days after the company reported a £9m first-half operating loss this week.

Shares in the UK’s biggest consumer electronics retailer Dixons Carphone also rose, as did those of department store chain Debenhams and B&Q operator Kingfisher.

All UK supermarket stocks closed lower, though this may only partly be related to Friday’s sales.

Speculation that Tesco might conduct a rights issue—questionable after disposals and other measures left it with £5bn in cash—continued to beset its stock, though it closed less than a penny in the red.

Shares of Marks & SpencerSainsbury’s, and Morrisons, all closed less than 1% lower.

At most, perhaps we can say investors do not expect major supermarkets to have seen much benefit from Black Friday 2015.

Though it may also be that store operators did their margins less harm this year than last.

Still, investors should keep an eye on reports of more staff than customers at some stores this morning, and that some retailers closed aisles for ‘normal’ shopping.






The biggest faller on our watchlist was Game Digital, ending almost 4% lower.

Our analysis (see initial article below, or click here) revealed that Game has one of the tightest operating margins among retailers on our Black Friday watchlist. (See ‘BLACK FRIDAY CONTENDERS AND OPERATING MARGIN‘.)

If Friday’s sales were anything like the damp squib across the board that was mooted, there’s little reason to expect an end to GMDG stock slippage seen since it hit a two month peak on 12th November.

The moderate stock fall by Argos operator Home Retail Group is slightly intriguing, given that it is trying to pivot from bricks ‘n’ mortar to largely online, the venue to which more shoppers appear to have gravitated on Friday.

Argos, perhaps more than most other retailers with an online presence, has pitted itself against Amazon, particularly after Argos offered same-day delivery for online sales to anywhere in the UK–better than Amazon’s pricey “Prime” service.

Again however, with one of the lowest-growing revenues forecast for the year in our group, and one of the slimmest operating margins over the last 12 months, Home Retail might not have done its profits any favours, even if it managed to snatch a little market share from Amazon.




SuperFriday ©

The biggest riser in our group on Friday was recovering young-folk fashion retailer SuperGroup, whose shares rose almost 5%.

The stock continued to ride high after strong quarterly earnings earlier this month, and a sentiment lift from September’s news that it was beginning a push into China.

Brokerage upgrades for the stock were still rolling in on Friday—with one analyst lifting their target price almost 200p higher than the stock’s close at 1643p.

Additionally, SuperGroup’s 12-month operating margin places it at No.3 in our list, whilst sales growth for the year is expected to be close to 20%.

At the same time though, its market rating (price/earnings ratio) is beginning to overheat again.

Its P/E has surged back to 21-24 times next year’s earnings vs. a peer mean of 22 times.

Investors perceive SuperGroup to be a fast-grower, like Internet fast-fashion outlet ASOS (whose shares closed 0.8% higher).

That means any missteps of the kind that kiboshed SuperGroup last year could leave the shares vulnerable to a fast-fashion de-rating.


Overall though, few retailers on our watchlist are likely to see much change to their outlooks into the year end from Friday’s sales.






Retail shares square up to ‘Black Eye Friday’


Published on 26th November


  • Most retailers come back for more, despite a bruising in 2014
  • But Asda isn’t playing this year
  • Will supermarkets be relative winners again?
  • Black Friday may have damaged the UK economy
  • That Dixons Black Magic
  • Another day with a silly name




Ready to rumble

The late November sales of US origin have quickly become notorious during their short history in the UK.

But their reputation for violence and injury—minor, usually—has recently been joined by a risk of sustained damage to retailers’ margins.

Despite this, consumer appetite for the promotion seems unstoppable.

Few retailers have decided not to join the fray this year, though some top retail executives have voiced misgivings.

After last Christmas, senior managers of chains like John Lewis, Britain’s biggest department store, and Argos-owner Home Retail Group, questioned the wisdom of concentrating so much business on Black Friday.

They suggested the event should be diluted.

However, a year later, they have either changed their minds, or lost the courage of their convictions.




Bigger, but not necessarily ‘blacker’ than ever

John Lewis Partnership Managing Director Andy Street said this month the group’s Black Friday events would “be bigger again this year”.

Most of John Lewis’s lower-price grocery rivals would probably be as bullish.

Among big supermarkets, only Asda, which was recently overtaken by Sainsbury’s as the second-largest grocer in the UK, will not be participating in Black Friday 2015.

The Wal-Mart-owned group argues its customers don’t like big price fluctuations.

“This year customers have told us loud and clear that they don’t want to be held hostage to a day or two of sales”, said Asda’s CEO, earlier this month.

Perhaps those customers recalled the infamous scenes of pandemonium at Asda’s last Black Friday shown by the media, epitomising what many regard as the senselessness of the event.

Asda, which in many ways is currently the worst-performing big UK supermarket group, believes it will have the last laugh.

Black Friday “might drive some of the ones in (the) red into even deeper red,” said Asda’s finance director Alex Russo.

Unfortunately, for UK retailers, he may have a point.




Asda abstains

One of Asda’s reasons for not re-joining the Black Friday frenzy may partly be down to a wish to avoid a repeat of the brawls that broke out at a minority of its stores last year.

However, another is undoubtedly that the business case for such promotions in the UK, so near Christmas is questionable.

It looks like British retailers have yet to fine-tune their formulas enough to see the traditional benefit US counterparts reap from the sales, and which gave the promotion its name.

Instead of the day on which UK retailers jumped from losses on the year into the black, many found their selling cycles were disrupted.

Facing a drop in demand in the weeks that followed the event, many store groups have had little option but to sell stock at a discount for longer.

Additionally, retailers say anticipation of Black Friday sales has begun to distort trading activity far in advance.

In such cases, footfall tends to slip, according to the retailers, and operating profit may take a while to heal from the battering margins take on the day.

All this has hit profit margins.

Asda’s solution to the conundrum is to invest over £26m in sustained discounts spread across the traditional winter shopping season, rather than focusing on one day.

Will rivals regret not following its lead?

The list of serious corporate casualties from Black Friday 2014 is a long one, it includes the retailers named below and many others:



  • Shares of Argos operator Home Retail Group entered a downtrend in January from which they have yet to emerge. Its sales catapulted 45% higher than average on Black Friday 2014, and online visits tripled year-on-year, but margins were trashed
  • Shares of Game Digital imploded by 56% on one day in the same month, the worst share price fall by a retailer in reaction to a 2014 Christmas update. It said heavy competition pressured it into unprecedented price cuts and bundling games with consoles—again, margins were slammed
  • Marks & Spencer, the biggest UK clothing retailer, was last year’s highest profile ‘casualty’. Its huge distribution centre in central England was thrown into chaos and was a major factor in the firm missing forecasts. M&S says it has tested its systems and they won’t fail again
  • Sales of Boohoo.comDebenhams, Majestic Wines and other large retailers also disappointed, although less severely. But because of the Black Friday link, their shares still fell sharply on the day of their updates






This won’t be happening again – Black Friday at an Asda store, November 2014





A better day in a bad year for supermarkets

The largest UK supermarkets ironically were among last year’s Black Friday ‘winners’. None of them reported stronger same-store revenues during the quarter holding the promotional season; though 2014 was an overall annus horribilis for the industry.

But because sales falls in their quarters including Black Friday were not as deep as expected, their shares rose.

  • For instance Tesco said same-store sales fell 2.9% in the 19 weeks to 3rd January 2015, above expectations and much better than the 5.4% sales fall seen in Q2, its shares rose 15% on the news, its biggest one-day rise since 2008
  • Another winner, was at the time embattled ‘twenty something’ fashion chain SuperGroup Plc. It said same-store sales in the 11 weeks to 10th January grew 12.4%
  • Perhaps the biggest ‘winner’ in 2014 November sales was Dixons Carphone. It said gross margins during the 2014 Christmas season were steady, but it did not escape the retail perils of the season entirely. “There is no doubt that the huge scale…of our Black Friday promotion impacted the three weeks that followed”, said DC’s CEO Sebastian James in January




Discount, deflate

Most of the biggest retailers had little to crow about, though.

Sales during the 12-weeks ending on 4th January showed the fastest growth seen since August 2014, said retail market research firm Kantar Worldpanel.

Sales rose 0.6% compared with the same period during the year before.

However, Kantar also noted pressure on prices intensified, with like-for-like deflation of 0.9% during the 12 weeks, another new record low.

A large part of the deflation was due to “high levels of promotion”, said Kantar, attributing 43% of consumer grocery spending at the time 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.

Sales fell 0.4% in December year-on-year on a like-for-like basis.

Economists polled by Thomson Reuters had on average forecast sales would actually rise during the month by 0.7%.

This raises a major question for Black Friday 2015.

Will investors be as tolerant of the big supermarkets and other recovering retailers if their November 2015 profits disappoint again?

After all, this time, there are few tough comparable performances from the year before to judge them against.




UK retailers carry on discounting

Most major UK retailers seem to have ignored the risk to their shares, perhaps hoping that tweaked strategies will bring better results this year.

But whilst virtually all retailers claim to have taken steps to avoid the problems that beset last year’s November sales, decreased discounting does not seem to be one of them, in most cases.

Already, the Black Friday hype machine is running at full strength, and there’s some justification.

  • Retail researcher Conlumino forecasts Black Friday 2015 will generate UK sales—in store and online—of £1.6bn, up 20% on 2014
  • Online spending is forecast to soar 32% year-on-year to £1.1bn, according to Experian-IMRG

Given that most retailers are not planning to make major changes to their in-store Black Friday strategies in 2015 (apart from doubling down), year-round sales will play a big part in how investors judge their winter season.


Unfortunately, some retailers have taken a Black Friday hit in advance of the event itself.

  • The British Retail Consortium blamed weak October numbers on shoppers holding out for bargains
  • Last month, Home Retail issued a profit warning. It blamed uncertainty ahead of Black Friday, despite introducing “red”, “white” and “blue” Friday deals at Argos ahead of 27th November, hoping to smooth demand
  • Last week Poundland also blamed “volatile” conditions in the run up to 27th November for like-for-like sales falling 2.8%, the worst performance by any large retailer in the quarter





Dixons’ Black Magic

We expect the pair above to have company after this year’s event.

Firms, which are already facing significant challenges so far this year, whether due to shaky sales or weak margins,  can be expected to go over the edge, at least a little, if they get Black Friday wrong again.

On the other hand, those retailers which get the formula right, may not necessarily see much profit from Black Friday, but their shares are still likely to get a boost, if last year’s January updates are anything to go by.

Either way, retailers still face considerable hurdles this winter.

For example, even though Dixons Carphone navigated Black Friday without much damage last year, and has performed well in 2015, its modest operating margin could leave it exposed to some negative impact this winter.

Still, Dixons may have a winning formula. It typically plans late November promotions meticulously, and buys products specifically manufactured for Black Friday deals.

This protects margins.




Blue Monday?

Another way Dixons and many other large retailers hope to beat the Black Friday curse, is by beefing up online promotions, including extending discounts into Cyber Monday.

If this results in a broader retail mix for the promo season, sales volatility (and perhaps instances of human volatility) might be reduced on the big day.

Retailers who sell predominantly or only online might have something of an advantage if more customers decide to switch winter shopping to the Internet.

‘White goods’ and consumer electronics retailer AO World could be a case in point.

“We’ve renamed it ‘Black Eye’ Friday, AO CEO John Roberts said this week. “Online is the safest place to bag a bargain.”

However, AO’s shares fell sharply earlier this week after it reported a £9m operating loss for the first half of its financial year.

AO World’s sales are ballooning from a very low base, as it invests to expand in Europe, with little-to-no profits forecast for the next few years.



Below we list the retailers whose performance we will track particularly closely on Black Friday 2015.

We’ve ranked them based on sales growth and operating margins.

We believe these metrics could be major deciders of which retailers will win, and which will lose.





Please click image to enlarge / data from Thomson Reuters, Thomson Reuters SmartEstimate







Please click image to enlarge / data from Thomson Reuters



This article will be updated on Friday 27th November



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