The Investment Column: Retail sector looks fragile

Retail sector looks fragile

It has been a strange few weeks for UK retailers. In mid-December the doomsayers held sway amid fears of a Christmas sales slump. But the first crop of trading statements from retailers such as John Lewis, Kingfisher and Signet suggest that the pessimism may have been overdone.

The question now is whether at this halfway stage in the high street reporting season, the mood has swung too far the other way. Christmas this year appears to have been rescued by a late spending surge and it is possible that the sales increases being reported may well have been achieved by offering big discounts which will affect margins.

Investors should note that groups such as Sears, Laura Ashley and Argos have yet to report. Sentiment could look very different in a few weeks' time. Most analysts feel that with higher interest rates biting, retailers will find it hard to outperform. Caution remains the watchword.

The sector already has a rather fragile feel. The UK general retailer sector fell by 8.5 per cent against the market last year, hampered by some truly dreadful performances. Laura Ashley was the worst, underperforming by a thumping 82 per cent, followed by Oasis (71 per cent), Harvey Nichols (54 per cent) and Sears (54.5 per cent).

Only two big groups managed double-digit outperformance - Boots and Kingfisher. Both reported trading updates yesterday and even one of this leading duo managed to disappoint. Boots' figures prompted analysts to downgrade their full-year figures while Kingfisher's bullish figures fuelled upgrades.

It seems clear that Kingfisher's B&Q chain is trouncing all others in the DIY market, hence the muted performance at Boots' Do It All. The Kingfisher- owned Superdrug is also recording strong sales gains, some of which may be coming at the expense of Boots the Chemists. On downgraded forecasts of pounds 540m Boots shares are still very highly rated and there is no room for disappointment.

Kingfisher looks better value and Societe Generale Strauss Turnbull now has a target price of pounds 10 against yesterday's 912p (up 27p ).

Given that the sector seems unlikely to outperform in 1998, investors need to select stocks that could benefit from company-specific changes. Arcadia, the Burton multiples business could see an upturn after the demerger. WH Smith could also see demerger benefits. And Allders remains underrated, even after its good run last year.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
News
Approved Food sell products past their sell-by dates at discounted prices
i100
Sport
Jonny Evans and Papiss Cisse come together
football
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
News
i100
Arts and Entertainment
The beat is on: Alfred Doda, Gjevat Kelmendi and Orli Shuka in ‘Hyena’
filmReview: Hyena takes corruption and sleaziness to a truly epic level
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis