UK retail sales recorded their fastest annual rate growth in 14 years in October, according to the Office for National Statistics. Clothing sales were boosted by the cold weather, while supermarkets benefited from Halloween sales demands.
Retail sales grew by 7.4% last month compared with October 2015. The October figure also showed an increase of 1.9% from the previous month. Food store sales rose 0.8% and non-food store sales increased 2.7% from September.
Internet sales surged 26.8% year-on-year, the biggest growth seen in five years.
Christmas Boost for Troubled Retailers?
The national weather service the Met Office this month forecast an extremely cold few months, predicting hail, sheet and snow, with some parts of the UK to reach as low as -11*C. This may well provide a further boost for retail stocks – alongside the usual festive uplift of Christmas shopping.
Marks & Spencer Group (MKS), the UK-based multi-channel retailer, reported last week it planned to close 30 UK clothing and homeware shops and loss-making shops across 10 international markets, in an attempt to eliminate loss-making businesses.
Instead the company aimed to focus on food business of which continues to outperform the market. The performance of new food stores was ahead of expectations with stores opened in the past year exceeding sales forecasts by 17%, the company’s half year result statement said.
Steve Rowe, chief executive of Marks & Spencer said: "Over the next five years we will transform our UK estate with 60 fewer clothing and home stores, whilst continuing to increase the number of our Simply Food stores. In the future, we will have more inspiring stores in places where customers want to shop that complement our growing digital offer.
"These are tough decisions, but vital to building a future M&S that is simpler, more relevant, multi-channel and focused on delivering sustainable returns."
Marks & Spencer shares was down 5.2% to 331p on November 8 the announcement of stores closure. The stock has dropped 25.4% year to date.
FTSE 100 retailer NEXT (NXT) reported its total sales were up 0.4% year to the end of October from the previous year. The stock is down 29.1% year to date.
Mixed Outlook for Supermarket Stocks
Tesco (TSCO) reported good first-half year results for the six months ending August 2016 after several years of struggle, showing further growth in its core UK market.
Morningstar equity analyst Adam Kindreich is positive on the outlook for Tesco, saying the result confirms that the recovery program, under way for the past two years and far-reaching in scope, is now delivering results. Even including further reductions in Tesco’s UK pricing relative to peers, the company should still be on track to meet its goal.
The stock has gained 42.6% year to date. Currently the stock ratings and fair value estimate are under review by Morningstar analysts.
Another retailer Sainsbury (SBRY) reported a disappointing results in September as the supermarket finalises the acquisition of Argos owner Home Retail Group, according to Kindreich.
“Same-store sales fell 1.1% excluding fuel, which shows no improvement on previous periods. The weakness in sales was brought about by price cuts, while volumes are growing,” said Kindreich.
Sainsbury’s figures contrast with the accelerating sales for its rival supermarket Morrison's (MRW). Morrisons, the fourth-largest supermarket in the UK, reported its sales growth in September while its debt levels were down.
Analysts also put both supermarkets fair value estimate under review. Sainsbury shares are down 7.5% year to date while Morrison stocks are 47.4% year to date.
