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The Christmas retail 2015 winners and losers

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Written by: Steve Clayton
15/01/2016
Steve Clayton, head of equity research at Hargreaves Lansdown says that after an unpredictable Christmas, the outlook for the remainder of 2016 looks good for retailers.

Christmas comes around every year, but it always seems to take some of our retailers by surprise. This year is no exception, but it is not just the retailers who got more than they expected; investors too have had their fill of retail surprises, good and bad.

The losers

Poundland, Game Digital and Sports Direct were the losers this year. For Poundland, weak footfall left its sales in tatters and shares tumbled.

Game Digital fell sharply shortly before Christmas when it warned that customers weren’t buying the latest generation consoles or software for older consoles as fast as predicted. Since the warning, the shares have more than halved, with a similar cut to forecasts.

Sports Direct issued two warnings in a month – firstly that sales in Europe were under pressure, and then after Christmas, it revealed it missed the goal at home too. While the core business had been underperforming, management had been busy taking small minority stakes via derivative contracts in a couple of US retailers. Sports Direct shares now trade more than 50% below their peak.

Weather was a real problem for winter clothing as 2014 had been unusually mild, which should have made for easy comparables for fashion retailers. But December turned out to be the warmest in a hundred years or more, and “easy comps” proved to be anything but.

M&S saw clothing sales miss targets quite badly, and CEO Marc Bolland announced his retirement. At least the Foods business had a good Christmas. Next too, was forced to announce sales had come in below plan. Both stuck to their guns on pricing, declining to discount heavily before Christmas. This kept margins firm, but cost dearly on volumes.

Debenhams surprised everyone by producing one of the better results and shares jumped on the news. Historically a serial discounter, but CEO Michael Sharp’s strategy of reducing the number of discount days paid off, as did a decision not to go overboard on outerwear buying volumes, which meant they weren’t left facing a mountain of winter coats to clear.

Ted Baker and SuperGroup both reported solid Christmas trading, with low single-digit like-for-like sales, earned against tough comparable trading a year ago. Both showed good growth in total sales, reflecting strong new store opening programmes. Burberry revealed tough trading conditions, but it says it’s on course to hit profit forecasts, mainly due to cost cutting and a reduction in profit-related pay. Hong Kong is a difficult market still, but mainland China has returned to growth.

The winners

Morrison surprised analysts with a return to positive like-for-like (LFL) sales, when a result more like -2% was predicted. After Sainsbury came in with a pretty robust number, all eyes were on Tesco, where many analysts predicted a poor Christmas performance. In the event, Tesco moved firmly into positive LFL sales over Christmas. Kantar analyst data suggested Aldi and Lidl had lost some market share, perhaps indicating we’re seeing the start of a fight-back by the big four supermarkets.

Home Retail Group came to the spotlight when Sainsbury revealed it made a takeover which was rejected. Home Retail duly followed up with a trading update showing poor performance from Argos, but also revealed plans to sell Homebase to Australia’s Wesfarmers for £340m.

Overall, after an unpredictable Christmas, the outlook for the remainder of 2016 looks good. Rents are falling in many locations; Shoezone recently said it was achieving an average 27% cut in rents when stores come up for five yearly rent reviews. Consumers have more money to spend, thanks to cheaper fuel and rising numbers of employment. Increases to the minimum wage will further boost spending power, but retailers must manage the impact on their own costs adroitly.

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