The uncertainty that the leave result brings may mean that consumer spending is tempered in the short term. This exacerbates the strain that retailers are already under from the “margin vice” of deflation, national minimum wage as well as required investment in infrastructure. For many retail businesses, the impact of any further devaluation of sterling will have a significant impact on the costs in the supply chain although the silver lining for some luxury retailers will be a boost from overseas spend.
That via RBC Capital Markets this morning. Those supply chain costs are going to be fun for retailers battling parliamentary inquiries among everything else on their plates.
Retailers like Sports Direct, who just put out this
warning filing to investors:
Following the outcome of the referendum, Sports Direct International plc (“Sports Direct” or the “Company”) notes the associated market volatility and in particular material changes to sterling / dollar exchange rates, and the lack of transparency as to those rates in the short to medium term. These factors are likely to impact purchases for which the Company is currently not hedged for the FY17 period and beyond.
The Company continues to assess the impact of the referendum and will update the market further on announcement of the preliminary results on 7 July 2016.
RBC put Sports Direct as the retailer “most exposed to currency impact”:
Unhedged on GBP/USD below 1.60 and sources most of its own brand product in USD from Asia. We see 5-10% consensus EPS risk on currency and upwards cost pressure given rising labour costs.
Here’s Sports Direct (white) against GBPUSD (green):