““It is rare for two FTSE 100 retailers to issue big upgrades on the same day,” said Nick Bubb of Pali International. But on Tuesday, both Next and Wm Morrison shrugged off the recession with improved profit forecasts. Next said like-for-like sales in the half year to July had fallen by just 1.9%; this year’s earnings forecast has now been upgraded from £375m to around £400m. Morrison grew overall sales by 9.5% in the 12 weeks to mid-July, compared to the market’s 5.9%.
What the commentators said
Morrison is undergoing a recovery programme following its botched integration of Safeway, while clothing retailers are always helped by good weather, said Nils Pratley in The Guardian. But these results nonetheless suggest that life on the high street is “rosier than it ought to be”. That’s because, for many, disposable income has risen. Full-time employees with a mortgage are benefiting from lower interest rates and falling inflation.
But this doesn’t mean the outlook for consumption is positive. Indeed, “a prolonged period of consumer weakness still lies ahead”, said Capital Economics. Unemployment has much further to climb and pay freezes are widespread, while tax rises are on the horizon. Real disposable income is set to fall this year and next.
House prices are still falling, denting household wealth, and it will take years for consumers to reduce their debt to sustainable levels – especially as interest rates will rise from here – and bolster their meagre savings. Don’t hold your breath waiting for a retail rebound.