Why the retail sector presents opportunities for investors
The spotlight in the retail sector recently has been mostly on negative news. This week’s disappointing results from Marks & Spencer follow lacklustre figures from Next and, of course, the failure of BHS – not to mention the ongoing struggles in the supermarket sector.
However, look beyond these headlines and we can see there is also good news to be found in certain parts of what is a very large and diverse sector, as shown by the healthy retail sales figures for April released last week by the Office for National Statistics.
Wholesaling and convenience store group Booker and car dealerships operator Lookers have both posted strong trading updates in recent weeks. Premium chocolate retailer Hotel Chocolat completed a successful IPO on the AIM market, hoping to follow in the footsteps of drinks group Fevertree which has seen its shares rise fourfold since it floated in 2014. Credit Suisse upgraded the sector this week and the share offer by fashion retailer Joules received a good reception from the market ahead of its debut on AIM.
Kingfisher’s first quarter results this week showed good growth in its UK businesses and Dixons Carphone, one of our favourites in the sector, has this week reported a five per cent increase in sales for the full year. And we would add that despite disappointing results, Marks & Spencer remains on our ‘buy’ list. The dividend income stream is good and the lower price point looks attractive for the patient contrarian investor.
In summary we see plenty of opportunities in the retail sector. However investors should be aware that a vote to leave the EU in the upcoming referendum might have a significant impact on the sector if consumers fear an economic slowdown and become more cautious about spending.
Ian Forrest is an investment research analyst at The Share Centre