We didn’t exactly shop ‘til we dropped at Christmas but trading figures for the festive season showed there were undoubted winners in the retail sector and the gap between winners and the losers was wider than usual.
There seems to be an erroneous perception that if one retailer produces poor figures then the whole sector must have suffered and shares tend to be marked down across the board. Canny investors who can spot the winners thus have the chance to snap up shares in the better performers at a lower price.
Supermarkets
Unfortunately the winners this time were low priced chains Lidl and Aldi, plus the Co-op and John Lewis, none of whom are quoted on the London Stock Exchange.
Of the three listed retailers, Sainsbury was clearly the best performer. Sales were admittedly a little disappointing but the trend of growing quarterly like-for-like sales just held with plus 0.2% in the 14 weeks to January 4.
Total sales excluding fuel were up a reasonably healthy 2.7%. Other good news is that the supermarket recovered from a poor start to the quarter and it notched up strong gains on its own brand lines.
Tesco (TSCO), in contrast, continues to slide at home and abroad with UK like-for-likes 2.4% adrift in the six weeks to January 4 and global sales down 1.1%. Chief executive Philip Clarke sounds increasingly desperate, his assurances that his turnaround plan is making progress ringing ever more hollow.
He is, perhaps, taking consolation from the notion that there is always someone worse off than yourself, that someone being in his case Dalton Philips, chief executive of Morrison (MRW), where like-for-like sales slumped 5.6% over the same six weeks.
Philips has even more of a credibility gap to plug after he promised in November that sales would grow in the final quarter of its financial year to the end of January. It doesn’t take a crystal ball to forecast that it isn’t going to happen.
All three supermarkets saw their shares fall on the trading figures, with Morrison naturally plunging furthest. I feel no temptation to buy either Morrison or Tesco shares at current lower levels as there is likely to be more bad news on the way.
Don’t even thing about Morrison shares until there are clear signs that the alarming slump is over. Morrison still has a lot of catching up to do in providing online sales and branching out into convenience stores.
Shares in Sainsbury (SBRY), a major holding in my portfolio, had run too far ahead of themselves. However, the yield is 4.8% and Sainsbury is without doubt the best of the bunch. The shares are worth looking at if they fall any further.
General Retailers
There are clearer winners among the general retailers and one of them is Next (NXT), a chain that gains when Marks & Spencer (MKS) struggles. Also recording a bumper Christmas was fashion brand Ted Baker (TED).
Neither, however, look particularly appealing as an investment at the moment as a great deal of good news is already reflected in their share prices. Both offer yields of less than 2% and both are on demanding price/earnings ratings, in the case of Ted Baker a whopping 43.
Debenhams (DEB) does have a decent yield of 4.5% and a p/e on only 7.5% but that is on an historic basis and the future looks bleak after a profit warning last week. Its shares have had a chequered history since the company was refloated so don’t go in with your eyes closed. In fact, I wouldn’t invest at all.
Marks & Spencer, the food store that used to be a leading clothes retailer, also continues to struggle and the sharp rise in the share price this week created an opportunity to sell. The shares are up by more than a quarter since Marc Bolland was appointed chief executive in May 2010 but I can’t see why.
Clothing and home goods continue to struggle. It is particularly worrying that clothing sales have now fallen for three Christmases in a row. The autumn/winter clothing range that was supposed to transform the landscape has done no such thing.
Food Outlets
Good figures from Greggs (GRG) and Domino’s Pizza (DOM) make both companies worth looking at.
Domino shares are well below this year’s peak above 700p in June and the yield of 2.7% on 2012 figures does not reflect the possibility of a dividend increase for 2013. Well done to anyone who has bought shares in the meantime. It may not be too late to follow suit.
Greggs had a great finish to what had been a miserable year containing a series of profit warnings. Hopes of a turnaround in 2014 are already reflected in the share price, however, so the case is far less compelling than for Domino.
I shall continue my comments on the outlook for various sectors next week.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
