JD Sports is furious, Sainsbury’s sees shortages hit Argos, and Currys launches buyback after bumper sales

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“Stock markets took the Federal Reserve’s statement on stimulus tapering in their stride as investors liked the news that the central bank would be patient about raising interest rates. US markets ploughed ahead with the S&P 500 hitting another record high,” says Russ Mould, Investment Director at AJ Bell.

“The key point to consider is that the Fed didn’t shock anyone. Markets hate surprises and the central bank’s statement was as dovish as it can get, which is like a hot water bottle on a cold winter’s day from an investor’s perspective.

“The FTSE 100 advanced 0.3% to 7,268, driven by oil, tobacco, miners and telecoms stocks.

“The index will be closely watched later today when the Bank of England announces its latest interest rate decision. Pressing the button on higher rates could potentially drive up sterling and weigh on the large number of FTSE stocks which earn in foreign currencies.

“Yet realistically it is hard to see the Bank of England push through an aggressive rate hike today, so sterling may not move too much. In early trading ahead of the rate decision sterling traded 0.4% lower against the US dollar at $1.3642.”

JD Sports

“Peter Cowgill’s blood is boiling as JD Sports is being forced to sell trainers shop Footasylum.

“He has been fighting the competition authority for some time, arguing that even after absorbing Footasylum into JD there still is plenty of competition in this sector, particularly from shoe manufacturers which are increasingly selling direct to consumers.

“But the CMA is not having it and insists that consumers could be worse off if JD was permitted to keep the business.

“The shoe market is well served by a range of retailers in the UK, so it does seem odd that the CMA is being so stubborn. Quite often in these situations, the company being investigated would be forced to sell some of the acquired shops in certain geographical locations, but not necessarily the entire business.

“JD Sports is unlikely to let the CMA have the final word and it now seems that Cowgill is on a personal mission to emerge victorious. It’s now a fight of principles and not letting the CMA set the precedent for future cases of a similar ilk.

“Footasylum is not really a material part of JD and was an opportunistic purchase in the first place, with the suitor only paying £90 million two years ago. To put that in some context, JD is guiding to make at least £750 million pre-tax profit this year from its whole business.

“Cowgill wants fair treatment in this fight and is unlikely to stand down until, given that the statement says JD is studying its options.”

Sainsbury's

“While the latest results from Sainsbury’s were broadly reassuring investors still found themselves spooked by warnings on supply chain and staffing issues.

“That the supply chain problems are most heavily affecting Argos, Sainsbury’s star turn through the course of the pandemic, is perhaps part of the problem.

“Argos sales are already under pressure as a result of shortages as well as easing demand as the economy reopened following Covid disruption.

“For a time Sainsbury’s and, in particular, its Argos operation were one of only a relatively small number of retailers able to operate meaning they made what were essentially artificial market share gains, of which they were always like to give back a portion.

“The company still reckons it is in a good place for Christmas and is sticking with its full year guidance.

“A renewed focus on food and on offering value looks to be having some impact at the margin on bringing the fight to discounters like Aldi and Lidl.

“A question hanging over Sainsbury’s is what happens next with its banking operation after the company recently ended talks over a sale of the business.”

Currys

Currys’ ability to look forward with confidence to the peak Christmas trading season is testament to its ability to manage supply chain challenges and labour shortages.

“And it doesn’t look like margins are taking too big of a hit either, judging by the company’s decision to stick with its full year profit guidance.

“There are two other big challenges facing the business though. One is that demand for computer equipment from people working from home for the first time and those who got seriously into their gaming during lockdown will gradually evaporate as we return to a ‘new normal’.

“The other is that consumers are set to start feeling the pinch in a bigger way as the cost of energy, food, fuel and mortgages goes up.

“These pressures are not distracting Currys from its medium-term goals on cash flow and profitability and the company has demonstrated some confidence in the outlook by sanctioning a buyback.

“This is underpinned by lower capital expenditure, reduced costs and an expected healthy bank balance.

“The company signalled its intention to stay ahead of the curve over the summer as it trialled a super-fast delivery service for its goods using Uber drivers.

“Whether there is quite the same demand for this type of service when it comes to electrical goods is an open question, unlike food and convenience goods where Tesco’s recent agreement with German ‘dark store’ delivery specialist reflects part of a wider trend.”

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.