The Worst Profit Warning I Have Ever Seen

The Week: Morningstar columnist Rodney Hobson looks at Sosandar's profit warning, WH Smith's global ambitions, and Sainsbury's after Mike Coupe

Rodney Hobson 24 January, 2020 | 9:28AM
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Regular readers will know that I have a pathological hatred of hidden profit warnings but the disgraceful example from online women’s fashion retailer Sosandar (SOS) is the worst I have seen in 35 years of covering London stock market announcements.

The trading update boasted of a record quarter with sales set to beat expectations. Shareholders were treated to several paragraphs and a load of bullet points extolling the wonderful sales figures, including the fact that sales in the last three months of 2019 were greater than for the whole of the previous six months.

The joint chief executives were so bowled over they almost forgot to mention that “given the upfront cost of acquiring new customers … the company expects this investment to result in the net loss for the full year being higher than previously anticipated”.

So you sell goods at a loss. Then you sell more goods at a greater loss. The answer is not to sell even more goods at an even greater loss. It is to sell at a profit.

Sosandar claims that the benefits in future years will be all the greater but as one commentator on Twitter remarked, it’s not so much a promise of jam tomorrow but jam the day after tomorrow. The shares fell 2p to 26.25p. They were half that level last August, which in my opinion is where they should be now.

If Sosandar’s management and its advisers cannot be trusted to be upfront with a profit warning, the only advice I can give investors is to stay well clear.

Will WH Smith Travel Well?

As yet another name – this time it’s Beales – runs into trouble on the high street the sensible policy of WH Smith (SMWH) in diversifying away looks ever more sensible. In the 20 weeks to January 18 sales in the high street slipped 5% but the expanding travel side, with outlets at railway stations and airports, was a similar percentage ahead even before taking acquisitions into account.

The main concern remains whether that success can be translated into overseas markets, notably the United States and Germany. So far it seems to be working.

Smith shares peaked at £26.54 just after Christmas but have since fallen back for no good reason other than that they had run a bit ahead of themselves. The yield based on last year’s dividend is 2.3%. It’s been a great investment for me, combining capital gains with a solid dividend. Long may it continue.

Sticking With Sainsbury’s

It’s been a tough six years for Sainsbury (SBRY) under chief executive Mike Coupe, with intense competition from Aldi and Lidl, and he has performed reasonably well, though not as well as his predecessor. His reign was blessed with the successful acquisition of Argos and tainted by the failed proposal to merge with Asda.

There will be a smooth handover, to retail and operations manager Simon Roberts, who joined the supermarket chain three years ago, so he knows the ropes. Here’s hoping it works out, but investors are not sure and the shares slipped 2%. They are down by a quarter over the past 12 months.

The latest trading update was mixed, with sales down 0.7%. There is no sensible advice that one can give in these circumstances. We shall know if Roberts is up to scratch only when he starts to produce his own trading updates. I am staying in and chancing my luck.

Hold Your Fire

A timely reminder of the dangers of rushing in when the market opens at 8am. Boosted by an excellent trading update, ASOS (ASC) jumped from £30.24 to £34 at the opening but it was possible to buy around £31 later in the morning.

Of course, if you don’t move sharpish you may miss the opportunity altogether but that’s just too bad. Buy in haste and you are more likely to repent at leisure.

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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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.