Britain’s retailers had a bumper Christmas, but investors should remain cautious, says Ben Judge.
Britain’s high street had a “bumper” Christmas, says Ashley Armstrong in The Daily Telegraph. Morrisons had its best Christmas for seven years, with a 2.9% rise in like-for-like sales. Sainsbury’s modest like-for-like sales growth of just 0.1% was better than the market was expecting, while growth at Argos, which Sainsbury’s bought last year, came in at 4% – more than double analysts’ forecasts.
Same-store sales at Tesco rose by 0.7%, again beating analysts’ expectations. And John Lewis reported a 2.7% increase in sales, while those at Waitrose were up by 2.6% – although staff were warned to expect a lower bonus because of the rising costs of imports.
However, it was Marks & Spencer that delivered the biggest surprise, “storming ahead of City predictions” with its best Christmas in six years, says Armstrong. Among the good news was a reversal in
the long-running decline of its non-food sales, with clothing and home seeing a 2.3% rise. The chain’s top sellers included the red dress worn by “Mrs Claus” in its Christmas advert.
M&S chief executive Steve Rowe is cautious, chalking up most of the rise to “extra days trading”, says Alex Brummer in the Daily Mail. But nevertheless, he is “showing that the nation’s most emblematic shopping chain can be made good again after so many negative quarters”.
All of this stood in stark contrast to results from Next, traditionally one of the high street’s bellwethers. Next was the first to report, and its results were terrible – sales fell by 3.5%, much worse than expected. The company issued a profit warning and the share price slid by 12%, temporarily dragging the rest of the retail sector with it.
Next’s shares are now 50% down from their high of 8,175p, set in December 2015. After many years perched at “the apex of mid-market garment retailing”, the chain is now in a “less desireable place”, says the FT’s Lex column. “Rivals have eroded the early online advantage Next gained from its skills in catalogue shopping. And, unaccountably, Britons have been buying fewer clothes.”
Hence investors shouldn’t get carried away by the holiday euphoria, says Andrea Felsted on Bloomberg Gadfly. “Retail Christmas trading statements are a bit like the holiday itself.” There’s “excited frenzy of spending before the big day”, then the shock when the credit card bill hits your doormat.
The reality is that Britain’s women are “out of love with clothes”, with the fashion market undergoing its biggest fall in sales since 2009. And “food inflation is finally back”, which could be a mixed blessing for supermarkets. The full effect of “changing consumer sentiment and weak sterling” won’t be clear for some time. “Investors should keep their enthusiasm in check.”
Silicon Valley’s nervy wait for the next big IPO
There are four basic steps to startup investing, says Shira Ovide on Bloomberg Gadfly. 1) Get people to give you money. 2) Buy shares in young firms. 3) Cash out in an initial public offering (IPO) or by being acquired by a larger firm. 4) Profit. Simple – but lately there have been a few snags in the process.
There’s still no problem with steps one and two. US venture capitalists piled $101bn into the country’s startups last year. That’s down on the “global startup funding mania” of 2015, but still very high. The trouble starts at step three. The amount of money being cashed out is not keeping pace. Startup acquisitions and IPOs totalled $50bn last year. At that pace, it will take 14 years to clear out the 184 tech startups valued at $1bn or more each (“unicorns” in industry parlance), which are collectively valued at $650bn.
Recent IPOs have included no big names, adds the Financial Times’ Lex column. Hence the nervy wait for the next one, most likely Snap, owner of messaging app Snapchat, which is expected to float this year with the goal of raising $25bn. If it succeeds, “expect a herd of lesser unicorns to dash to market”. If it fails, “the IPO window will slam shut”. That should not be a concern for the likes of Uber or Airbnb, which can easily raise fresh funding from venture capital; but it could be “alarming” for some “second-tier” companies, including Dropbox. Amid this huge tech boom, “sentiment could turn on one big IPO”.
City talk
• Publishing group Pearson put out its fifth profits warning in four years on the back of weakness in its US education business, prompting its shares to fall by almost 30% (making The Sunday Telegraph’s latest “sell” recommendation – see next page – especially prescient). The shares have fallen by 52% since the current chief executive, former public relations man John Fallon, took the top job in 2012.
At least Fallon “is good at explaining why things are going wrong”, says the Lex column in the Financial Times – the paper that Pearson sold to Japan’s Nikkei group in 2015. Pity he’s “less adept at seeing bullets coming”. Investors should be asking questions about the future of an executive team that “has been blindsided too often” and is reacting too slowly to the shift to digital. “Pearson’s motto is ‘always learning’. For the board, it is high time to put learning into practice.”
• Blue-blooded investment bank Rothschild & Co recently advertised an intriguing new role, says Thomas Colson on Business Insider. The successful candidate would work as “part of a dedicated team of professionals”, providing a “superior and seamless service”. The usual “strong inter-personal skills” and the “ability to work under pressure and meet tight deadlines” will be necessary, but the position did not call for any knowledge of banking. The vacancy, which has now been filled, was for an assistant head butler.
• Pub operator Punch Taverns has backed a £400m bid from brewer Heineken, despite a higher offer from Emerald Investment Partners, a vehicle set up by one of Punch’s founders. But Emerald hasn’t given up yet, says Dominic Walsh in The Times. “Word is that Emerald… has been chatting to potential partners with a view to having a tilt.” Among rumoured partners are C&C Group, maker of Magners cider and Tennent’s lager.