Just when you thought it was safe to go back into the UK retail sector…
… along comes another shocking trading statement.
The price action in Home Retail Group on Thursday morning:
Ouch.
The trigger for that decline is news that same store sales at the company’s Argos division fell by almost 10 per cent in the first quarter of Home Retail’s fiscal year.
That’s much worse than the City was expected (gross margins also surprised on the downside) and is being pinned on poor sales of big ticket electrical items.
Hence the share price fall in Dixons Retail Group and Kesa Electronics this morning:
(Note that Home Retail is saying Argos held its market share).
As for the read-across to the rest of the retail sector, Espirito Santo Investment Bank reckons its shows the pressures facing the low-income demographic in the UK:
In terms of readacross for the sector as a whole, the statement isn’t positive although we would note that the Argos weakness seems to be confined to electricals. As also highlighted by New Look yesterday and our own Spend Trend survey work, it seems as though the low income demographic is under most pressure. We continue to think that older, higher income consumers will outperform this year.
Which is good news for Marks & Spencer.
However, one shouldn’t be lulled into a false sense of security by its recent trading update (which was good) or for that matter the update from Next. Both will have benefited from customers splashing out early on their summer wardrobe because of the warm spring weather. (As if to prove that point, Home Retail’s other division, Homebase, reported like-for-like sales up 1 .6 per cent in the first quarter as consumers stocked up on BBQs and other stuff for the garden).
Indeed, the outlook for consumer spending and household disposable income remains grim.
Utility bills are rising, food prices are rising, petrol prices aren’t coming down, the housing market is softening, job cuts from the government’s austerity programme are starting to kick in and there’s the possibility of an interest rate rise before the end of the year.
Hardly makes you want to do out and spend, does it?
Related link:
Argos decline hurts Home Retail Group – FT