Christmas wish: Will the results of the festive season leave shareholders with a warm glow, or prove a letdown?
The Oxford Street and Regent Street lights have been turned on in London, the sequin frocks are shimmering in the shop windows and the supermarket food TV advertisements have been unveiled to whet appetites for turkey and myriad sweet and savoury treats.
It’s beginning to look a lot like Christmas which means attention is turning to the prospects for retailers’ shares.
Will the results of the festive season leave shareholders with a warm glow, or prove a letdown? Will Black Friday discounts spoil the party?
Overshadowing the fun will be the big Budget blow to retailers.
Their costs are set to soar by millions as a consequence of higher employers national insurance contributions and minimum wage increases.
Price rises in 2025 appear inevitable, a prospect that has hit retailers’ shares in recent days. But, for the moment, the focus of the big High Street names is on the next few weeks’ trading.
Mamta Valecha of wealth manager Quilter Cheviot says that, although consumers may remain value-conscious, ‘they are willing to spend on newness and innovation’. As a result, she expects a pick-up in demand in time for Black Friday on November 29 – and for Christmas.
This assessment suggests that retailers who are willing taking steps to surprise and delight could be the names to back this season.
Among those who study trends in this sector, there is much talk of ‘modern mainstream consumers’, people in all demographics who shun the dowdy and want quality and an extra helping of style. Pleasing these shoppers is the route to more sales.
Stuart Machin, chief executive of Marks & Spencer, is cautiously upbeat about his customers willingness to part with their cash for these and other more traditional fare. This week he reported a bounce in the pre-ordering of all Christmas food.
There has also been a clamour for the party dresses from the M&S muse, actress Sienna Miller, and the collection from designer Bella Freud – 9,000 of the jumpers from this range were sold in just two hours, underlining the desire for something a little different.
On Wednesday, Machin unveiled a 17.2 per cent leap in half-year profits to £407.8m, a figure well ahead of analysts’ expectations.
He said: ‘We’re well set up for Christmas – with our best-ever food range.’
Machin’s sense that the nation may be prepared to splash out more this year echoed the message last month from fellow FTSE 100 retailer Next, which said that improved consumer confidence was driving sales.
Even the beleaguered fast fashion firm Asos is reporting that shoppers are being drawn to ‘newness’, although this may not be sufficient to revive the shares which stand 365p, against their peak of 7630p in the spring of 2018.
This more cheerful mood may partly arise from the downward trend in interest rates. But it is also the consequence of the Budget which did not put the squeeze on most taxpayers. Chris St John, portfolio manager at AXA Investment Managers, said: ‘The Budget has allocated the heavy lifting to companies through the increase in employers’ national insurance.’
Among the beneficiaries of the higher minimum wage ordered by the Budget should be ABF, the Primark group. ABF’s share price has slipped this year to 2260p, but analysts rate the shares a ‘hold’ targeting a price of 2529p. In this new, more free-spending environment, shoppers’ budgets will not be necessarily much larger, as Chris Beckett, head of equity research Quilter Cheviot, explains. But they will be prepared to pay more for quality.
He contends that this should be good news for the supermarket giants, M&S, Tesco and Sainsbury’s, which are adapting to offer more upmarket dishes. If you are considering putting these companies on your Christmas investment shopping list, you may think that such has been the ascent in the share price of M&S that more gains are unlikely.
However, analysts believe that shares have further to run, as the company’s turnaround gathers pace. In late 2022, the year in which Machin was promoted to the top job, you could pick up M&S shares for 90p.
They have advanced to 376p – which is around 230 per cent higher than their price two years ago when they were featured in this column. I remain gratified to have taken my own gamble on the shares at that time – the gift to myself that keeps on giving.
The average analysts’ target price is 400p. But Peel Hunt is forecasting 425p. UBS has set a target of 465p.
Ian Lance of the Temple Bar investment trust which has a stake in M&S contends that the shares have ‘considerable upside potential’ and that a price of 500p would not be unreasonable.
Ken Murphy, Tesco’s chief executive, said last month, that shoppers were ‘in good shape’ ahead of Christmas. Britain’s largest supermarket is catering for the desire for something more special with in investment in its Finest range.
Since January, shares have risen by 18 per cent to 345.3p.
But the likelihood of yet more transformation at this £24.3billion giant means that analysts see scope for a further upward move in the shares, with an average target price of 392p.
I am continuing to hold my tiny Tesco stake in the hope of more appreciation.
Sainsbury’s performance this year has been less appetising although it has been making progress in its revamp.
Profits were down following the sale of its banking arm and other restructuring of the business. Since the start of the year, shares in the chain, number two in the grocery league, have fallen by 17 per cent to 250p despite an 18 per cent bounce in the sales of its premium Taste the Difference range.
But at this level it represents a cheap-ish bet on consumers trading up – and the dividend yield is an attractive 4.89 per cent. There are 46 shopping days until Christmas. But the first test of the nation’s desire to loosen the purse strings will come with Black Friday when the upgrading of laptops, phones and TVs has become a tradition – when optimism reigns.
Shares in Currys, the electricals retailer have soared by 60 per cent to 81p this year amid the conviction that shoppers will be feeling a little more flush.
Analysts appear convinced this will be the outcome. They rate the shares a ‘buy’, with an average target price of 102p.
Turnaround has become the watchdog in the High Street, with even Next, the stock market darling, undergoing change as it becomes more of an international player, selling its own label and dozens of other worldwide.
A small parcel of shares in this hugely accomplished retailer is on my investment shopping list.
Some weakness in the share price would be a Christmas bonus, but sometimes you must pay for quality.
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