It was a fairly mixed bag for shares in retailers this week, with many big names such as Tesco and Marks and Spencer providing updates. Summing up their views on the performance shares and the week gone by, Paras Anand and Michael Clark give their thoughts:
Commenting on the performance of retailers over the Christmas period, Paras Anand, Head of Pan-European Equities at Fidelity Worldwide Investment, says:
“Demand has been robust overall without surprising significantly on the upside. Most will have benefited from favourable comparisons with last year where the weather played a significant part in depressing sales – essentially a warm autumn and then snow disrupting some of the key trading weekends.
“There are a couple of aspects of the current reports worth highlighting. First, we have seen some real differentiation in terms of what retailers have experienced with respect to markdowns. Stores such as Next and House of Fraser described a positive markdown environment – in other words were able to sell more stock at full price despite a generally promotional backdrop. However, other retailers, most notably Debenhams, were forced to discount more of their stock, especially in apparel, which led to a disappointing outcome for their gross margins. Looking forward, we expect differentiation between the stronger and weaker retail propositions to grow.
“The second area worth highlighting is the tremendous growth in on-line sales. John Lewis for example saw a 44% growth in on-line sales and these account for a quarter of the company’s total sales currently. The UK is the now the market with the highest percentage of on-line sales globally and this migration is showing no signs of abating. However retailers traded over Christmas, it is dealing with this evolution – both an opportunity and a threat – which will be key to their medium term prospects.”
Two of the retailers in focus this week have been Tesco and Marks & Spencer. Michael Clark, Portfolio Manager of Fidelity MoneyBuilder Dividend, holds both of these stocks in his fund. He shares his views below:
Tesco: “The performance of the group has begun to recover. Over Christmas, UK like for like sales rose by 1.8%. The comparison is easy, it is true, since last year was so weak for Tesco. Nevertheless, the business has returned to growth and we see this as clear evidence that the plan to restore the consumer appeal of the stores is working. We look forward to further improvements as time goes on. Although the shares have begun to recover, we see much further upside and are keen to hold on for the longer term.”
Marks & Spencer: “There has been some disappointment in the market with the M&S trading statement, notably the 3.8% fall in like for like sales in General Merchandise. Yet we believe that this performance is not as bad as it appears. The company is focusing more on full price sales, and moving away from price promotion. This should mean higher margin over time, which will be beneficial to shareholders. So we are going to maintain our position in Marks & Spencer.”
