British retailers cautious despite unexpected sales lift
Retailers in the UK kept up their cautious stance today despite better-than-expected sales figures from the likes of Boots, Sainsbury’s and Argos.
A busy day for trading statements brought confirmation that Christmas was not the wash-out initially feared, although HMV, Ernest Jones owner Signet and Clinton Cards proved the exceptions with disappointing figures.
The sector was unanimous in its view that conditions would remain extremely tough over the next few months as debt-laden consumers cut back on spending and firms fought each other on price and product.
One of the strongest updates of the day came from resurgent supermarket chain Sainsbury’s as it revealed its fourth consecutive quarter of sales growth.
Helped by an advertising campaign featuring celebrity chef Jamie Oliver, Sainsbury’s sales were up 5.2% in the final three months of the year.
That did not stop investors worrying over its prospects, particularly as the company’s bill for turning round its fortunes remained higher than expected and the group warned its market was “highly competitive”.
Shares slipped more than 3% even though sales were stronger than expected.
Argos kept sales in line with last year, even though it said the non-food, non-clothing market had been weak during the Christmas period.
Owner GUS said it assumed similar conditions for this year with its other division of Homebase also feeling pressure in the DIY sector.
Boots saw no signs of retail conditions easing, although it was encouraged by a better-than-expected rise in underlying sales of 0.3% over Christmas.
House of Fraser was equally gloomy despite announcing a significant improvement in its trading performance for the six weeks to January 7.
Chief executive John Coleman said: “We expect trading conditions to continue to be difficult during the first half of 2006, as pressure remains on real household disposal incomes and consumers remain cautious about levels of debt.”
Clothing and electronic goods appeared to be in strongest demand ahead of Christmas, while shoppers showed a lack of appetite for jewellery.
Ernest Jones and H Samuel owner Signet said sales fell 9.3% amid signs of a general reluctance to splash out on expensive items, compounded by a preference towards gadgets such as MP3 players.
Signet’s view was endorsed by Argos, which said jewellery had been its most difficult sector.
Traditional high-street retailers found the going tough as supermarkets and websites took away more customers.
HMV was a casualty with a 5.5% fall while sister business Waterstone’s suffered a 2.4% fall amid fierce price competition.
Clinton Cards also struggled after customers opted for lower priced goods, resulting in like-for-like-sales falling 2.4%.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said there were signs overall that consumer spending may be returning.
But he pointed out that chief executives had been forced to fight hard for sales gains with promotions and targeted discounts.
Mr Hunter said: “It is clear that the next six months will continue to be extremely tough and there’s likely to be a lot of pressure on margins. Christmas is a key part of the year but it is still too early to call a recovery.”
