The all-important Christmas sales figures are starting to come through for the UK retailers with both Debenhams and Next reporting on Tuesday morning.
Debt-laden Debenhams posted a 3.5 per cent drop in underlying sales for the 18 weeks to Jan 3, but said it had managed to generate a profit before tax thanks to strict stock control. Interestingly, the group also said its Designers at Debenham’s ranges had helped the group pick up market share. Shares in Debenhams were up as much as 26 per cent on the numbers, suggesting they really were not quite as bad as feared. The group also said its net debt was significantly lower than the corresponding date last year.
Analysts at Pali, though, remain cautious about the group’s debt position, especially as talk of an equity raising persists:
Update bang in line with our expectations, with 18 week LFL sales no worse than -3.5% and gross margins flat, but, thanks to very tight cost control, profits are actually ahead of our forecast. We have FY EPS of 5.4p but might need to revise this and TP up a bit. But for the near £1bn debt it would be a good story, but with Debs clearly preparing for an equity raise of some sort, we would steer clear of it for now. Conf call at 10.30am.
Sales at Next, meanwhile, fared worse. Like-for-likes were down7.0 per cent, coming in just within the group’s November guidance figure but as anticipated by analysts. The group’s shares were up 9 per cent in early London trade.
Unlike some of its competitors Next said it chose to maintain its policy of trading at full price up to Christmas. The retailer also said it had focused on maintaining stock discipline seeing 8 per cent less stock go into the Sale period than last year. A very bleak outlook was still to be had however:
We are again budgeting very conservatively, with negative like for like sales for the full year, and we believe the first half will be particularly difficult. We expect Directory to remain less affected by the downturn than Retail, and are currently budgeting for sales in Directory to be only marginally down for the full year.
But while Next has cautioned against some of the more extreme economic forecasts doing the rounds, the impact of sterling’s dramatic weakness is starting to concern the retailer. Next warns currency weakness will be a major issue, especially as negotiations on sourcing Autumn and Winter stock begin putting significant upward pressure on prices and downward pressure on margins next season.
As Cazenove explains, the issue is likely to prove a major one for the industry:
Next has reiterated that it is assuming negative lfl sales trends in FY10 and the updated outlook statement refers to expected margin pressures from the further £ weakness against the €. H1 is substantially hedged at rates which precede the recent bout of £ weakness and hence any margin pressure – where the whole industry faces a tactical judgement as to the merits of absorbing COGS pressures rather than increasing prices – will principally affect H2. We may reduce our FY10E PBT estimate of £420m (EPS: 155p) somewhat more than pro-rata to the FY09 adjustment to allow for the current £/€ position.
Marks & Spencers, meanwhile, reports its figures on Wednesday with the market still braced for bad news. Revenues are seen falling by as much as 8.3 per cent in the third quarter, while The Times reports the group will also announce a massive slew of job losses — up to 1,000 posts going in stores and several hundred from head office and support functions.
Oriel Securities suggests much of Debenham’s market share gains will likely have come from M&S.
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A small update to highlight like-for-like sales from New Look (the more budget focused fashion retailer), which rose 2.8 per cent in the 14 weeks to Jan 3. The private-equity owned group says it is planning to invest in more stores in 2009 as it continues to win market share.
This, of course, is hardly a surprise. Consumers are continuing to downscale, moving away from upmarket and middlemarket retailers and towards budget chains like Primark and New Look. It’s good news for them, but it’s certainly not good news for the UK economy.