Thomas Cook/TUI and Superdry

Thursday, February 7, 2019 - 09:59

“The FTSE 100 trades a touch lower on Thursday but is still largely holding on to the big gains it enjoyed earlier in the week, with sterling still dogged by Brexit worries. “The Bank of England is almost universally expected to keep interest rates on hold later today so the focus is likely to be on its forecasts for growth and inflation,” says Russ Mould, Investment Director at AJ Bell.

Thomas Cook/TUI

“Referencing a hangover from the warm and sunny summer of 2018 as part of an effort to explain a fall in winter bookings seems like clutching at straws by tour operator Thomas Cook.

“More credible is the argument that consumer uncertainty is pressuring bookings for this summer, where at least the company has adjusted its capacity accordingly.

“The most telling element of Thomas Cook’s update today though is a strategic review of its airline business.

“This review, which could result in a sale of the division, is an acknowledgement that the company needs to take radical action to steady its performance and repair a fragile looking balance sheet. Investors will be hoping it might avert the need for a dilutive fundraising.

“There seems merit in the company concentrating on its portfolio of hotels instead. These typically generate better margins and it has plans to open 20 new hotels in 2019.

“In recent times Thomas Cook has been left in the shade by fellow operator TUI but at least on this occasion it can take some comfort from the fact its rival is also under pressure.

“It has shocked the market with last night’s profit warning blaming, among other things, the impact of a weaker pound on the purchasing power of UK holidaymakers.

“Depressed sterling is not a new trend and there have to be questions over how expectations have been managed by the company.”

Superdry

“Today’s weak third quarter update from high street fashion retailer Superdry is hardly likely to dissuade founder Julian Dunkerton from his efforts to seize back control of the company.

“The period, encompassing Christmas, shows like-for-like sales down a pretty miserable 1.5%. In fact, if it wasn’t for wholesale sales (that is sales of its product through other retailers) the picture would have been even more gloomy.

“Store sales dropped 8.5% and unlike some of its rivals, e-commerce was not there to pick up the slack with sales falling 0.7%.

“This begs the question of whether Superdry’s web-based sales platform is fit for purpose and/or if its brand still resonates with its target demographic.

“No doubt the reasonably mild winter, at least until more recently, contributed to weak trading given Superdry’s reliance on selling coats and heavier clothing.

“However, you have to question a strategy which leaves the company so at the mercy of fluctuations in the weather. “All eyes will be on Dunkerton now and what his next move might be.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.