Which Retail Stock Has Won the High Street?

THE WEEK: This week Morningstar columnist Rodney Hobson examines the winners and losers among the high street consumer stocks

Rodney Hobson 26 May, 2017 | 1:38PM
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Investors shouldn’t need reminding that life is tough on the High Street. Costs are rising, notably the minimum wage and energy, while sales can be erratic. The squeeze on wages caused by a rise in inflation, plus Brexit uncertainty, leaves the near to medium future for retailers under a cloud.

This week we saw once again that this sector always produces winners and losers – and one where previous winners become losers and vice-versa.

I was particularly pleased with the latest figures from Dixons Carphone (DC.), where revenue was up 9% overall and 4% like-for-like in the year to April. The group has coped remarkably well with the fact that tech consumers are probably more keen and able to pursue cheaper deals than most shoppers.

As chief executive Seb James said: “If you provide the right proposition they will show up to buy the stuff.”

I bought shares after they fell, unfairly in my view, following the previous update and these results justify that stance. The shares are now higher than they were when I bought but it is not too late to get on the line. This is a growth company.

There was a time when I felt like sending a Get Well Soon message to Card Factory (CARD) but Congratulations would be more in order now. It had an excellent first quarter, and while one should not write too much into a three-month period it has been on the mend for much longer. The shares have been recovering gradually in recent months but could have further to go.

Topps Tiles (TPT) seems to be going the other way. This former star performer has had a torrid first half. Management claims there was an improved trend in the second quarter. The sales figures suggest otherwise.

Unlike many in the sector, the shares have never recovered from the slump immediately after last June’s Brexit referendum and they are sliding again. I once considered investing but am now staying well clear.

I really do wish I could report that Marks & Spencer (MKS) has finally turned the corner but I can see no real evidence yet. It’s not the slump in full-year profits that bothers me most, horrendous though that was. Most of the fall was due to one-off factors and M&S continues to close unprofitable outlets.

What worries me is that no-one seems able to provide womenswear that women want to wear. Sort that out and there wouldn’t be unprofitable stores to close. Even more of a concern is that food, which has kept Marks afloat, is tailing off too.

After falling initially on the figures, the shares quickly moved into positive territory. I cannot understand why. The final quarter was particularly disappointing so the corner is not being turned yet.

The shares have risen by a third since the post-referendum crash. That represents a chance to take profits.

Patchy Performance Abroad

Like Marks, Kingfisher (KGF) has a patchy record abroad, though it has not ventured as widely. In the UK, the latest quarter shows the DIY chain did extremely well in its Screwfix trade outlets and OK though not brilliantly at B&Q, but poorly in its French outlets Castorama and Brico depot.

This is not the first time that this has happened. Indeed, Kingfisher rarely seems to get it right on both sides of the Channel at the same time. The shares slumped 7% on the figures and while that looks a bit of an overreaction it is a warning to investors to stay clear.

Halfords (HFD) goes up and down like a cyclist in the Tour de France. Sales rose in the year to the end of March, and did particularly well in the final quarter despite the late Easter. However, profits are ominously lower.

Despite the optimistic outlook, I find the performance at Halfords too patchy over the years. Don’t bother unless you enjoy the thrills of a bumpy ride.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Card Factory PLC91.40 GBX0.55
Currys PLC76.05 GBX0.20
Halfords Group PLC139.20 GBX-2.11
Kingfisher PLC248.60 GBX-2.81Rating
Marks & Spencer Group PLC295.40 GBX-0.51Rating
Topps Tiles PLC42.30 GBX-4.94

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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