Times are undoubtedly tough for UK retailers. Latest ONS figures show a sharp drop in sales as shoppers cut back on food and clothes due togrowing nervousness about the economic outlook. Retail sales volumes fell by a sharper-than-expected 1.3% in March, and although they rose 2.7% year-on year, this was well below forecasts of4.4% growth.
Shoppers are tightening their purse strings and grocery and fashion chains are starting to feel the pinch. Thesethree stocks are right in the firing line.
Hard cheese
Mid-market grocer J Sainsbury (LSE: SBRY) is on the slide again, itsshare price down11% over the last three months. Latestresults showed volume and transaction growth, notably innon-food, withclothing, general merchandise and financial services doing well. Unfortunately, this didnt stop underlying profit before tax falling 13.8% to 587m, while earnings per share (EPS) fell 8.3% to 24.2p.
Even iffood price deflation eases as management claims the wages of thinwill only drive more customers intothe arms of the discounters. Wafer-thin grocery margins fuelled chief executive Mike Coupes pursuit of Argos and the question now is how well he can integrate his new purchase into the business and transformSainsburys into a multi-channel operation. This is too big a gamble for me but investors will have much to cheer if Coupe pulls it off.
Fashion disaster
Fashion is an even tougher sector, judging by results at high street retailer Next (LSE: NXT), whose share price is down 20% over the last three months. Sales figures werehit by this years cold, wet March and April, which reduced demand for clothes compared to the previous years warmerspell. Although management warned that sales could decline further, recent warmer weather could brighten the outlook, at least in the short term.
Nobody is in any doubt about the tough timesfacing Next, especially givengrowing online competition from the likes of Boohoo.com, which could challenge its early-mover status. Yet the business expects to generate 350m of surplus cash this year, and has been throwing money at shareholders, returning 181m via buybacks and paying a special dividend worth 88m in February. At 11.86 times earnings, brave investorsmight see this as an entry point, and with EPS forecast to pick up to 5% in 2018, there may be long-term rewards.
Out of style
Upmarket fashion retailer Burberry Group (LSE: BRBY) had a good financial crisis, itsshare price climb continuing as low interest rates and QE made the wealthy feel wealthier, whilestimulus kept the Chinese growth story on the road. Its share price hit a high of 1,927p in February 2015 but it has been all downhill since then, with the share at just 1,139p today, a drop of40% in just over a year.
The Chinese simply arent spending like they were, especially in Hong Kong and Macau, and on their shopping trips to Europe. This is a worry as latest Chineseeconomic figures for April show the economy continuing to slow. You might see the last months15% share price drop as an entry point, taking the valuation to 14.55 times earnings against its long-term average of around 18 times. I see it as a sign of furthertrouble to come.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
