Best and worst performing retail stocks, and IWG strikes Japanese deal

Monday, April 15, 2019 - 11:40

High street spending figures: British Retail Consortium

“An improvement in high street footfall during March is a bit misleading as the figures are skewed by the comparative period last year being very weak," says Russ Mould, Investment Director at AJ Bell.

“The big takeaway from the BRC figures is the fact that higher footfall hasn’t translated into higher spending. This implies that many consumers are still being cautious about splashing the cash.

“It doesn’t seem the case that spending is simply shifting online. A report last week from Mintel discussed a slowdown in online grocery shopping and online fashion seller ASOS recently said its sales weren’t growing as fast as it had hoped.

“However, there are plenty of examples of retailers doing well this year including home furnishing expert Dunelm and shoe seller JD Sports Fashion.

“The key test for the retail sector will be April’s performance as the Brexit deadline delay to 31 October may have encouraged consumers to go ahead and make larger purchases, should they have previously been holding off pending the Brexit outcome. The weather forecast is also good for the long Easter weekend with decent temperatures and lots of sun – this should get people out and about.

“While that could result in a short-term boost to retail trading, one can assume that conditions could remain tough for the sector as the year progresses unless there is a radical breakthrough with how Brexit will play out and cost pressures ease”

Best and worst performing retail shares

“Retail has been one of the best performing sectors among the larger UK-quoted stocks so far in 2019.

“The FTSE 350 Food & Drug Retailers sector has risen by 26.6% year-to-date which relates to the big supermarkets.

“The FTSE 350 General Retailers sector is up by 23.3% over the same period. In contrast, the FTSE 350 index as a whole is up by 10.8%.

“Expectations were very low for the General Retailers sector at the start of the year and many companies have managed to smash earnings forecasts.

“Some of the stocks were also trading on cheap valuations, attracting investors looking for a bargain and prepared to take a punt on the sector’s fortunes improving.”

The best performers so far this year are:

Food and Drug Retailers
Ocado +77.0%
Greggs +45.2%
Tesco +30.1%
General Retailers
Dunelm +63.4%
JD Sports Fashion +51.6%
Next +41.6%
B&M +39.3%
Sports Direct +25.2%

IWG

“The £320m sale of its Japanese operations has been well-received at flexible office space provider IWG because it could help address concerns about the company’s mounting debt.

“The structure of the deal also effectively amounts to a franchise agreement with Tokyo-listed TKP buying the right to use IWG’s brands alongside the physical offices themselves.

“Franchise businesses are often seen as attractive by investors as they have the capacity for significant growth without substantial demands on capital.

“More fluid working patterns have driven demand for the kind of options offered by IWG but in the past three years earnings have slipped, the company has had to step up investment and borrowings have increased by more than three times to £461m.

“The company, best known for its Regus brand, could also be affected by a new accounting rules on property leases which might have made its financial position look more precarious, particularly given the £300m recently allocated to marketing and new sites.

“This spending is partly a response to the threat posed by highly-rated rival WeWork which offers lots of little extras like gym facilities to clients. Though notably it remains heavily loss-making and has not been tested in an economic downturn.”

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.