Gloomier outlook on the high street
The outlook for the retail sector has darkened after a raft of gloomy updates across the industry, including a shock profit warning from the UK's biggest supermarket Tesco.
Tesco, which has 2,700 stores in Britain, saw billions of pounds wiped from its value after it reported dire Christmas trade in an unprecedented blow to the company's fortunes.
But the misery in the beleaguered sector did not stop with Tesco. Argos owner Home Retail Group warned it was set to slash its dividend after a poor festive season, while Mothercare reported another drop in sales, albeit at a lower rate than the summer.
Chocolatier Thorntons reiterated its recent profit warning after Christmas sales fell by more than expected, while milder weather hit sales of car maintenance products at Halfords. Investors ditched retail stocks as the updates rolled in, with Tesco's 15% plunge on the FTSE 100 Index pulling Sainsbury's and Morrison's down 5% and 6% respectively.
The long list of disappointing figures overshadowed what has broadly been a better-than-expected season for the retail sector, with the likes of Marks & Spencer, Superdry owner SuperGroup, and Debenhams putting in a robust performance. Department store House of Fraser reported a 11.1% surge in like-for-like sales in the five weeks to New Year's Eve, echoing the similarly strong performance from John Lewis over the period.
Louise Cooper, markets analyst at BGC Partners, said Christmas has been better than feared for some retailers, but added: "There are still many companies struggling to survive and make any profit from sales."
She said: "I fear that 2012 will be worse as Europe and the UK enter back into recession, Government austerity bites and the eurozone crisis flares up again."
While the retail industry has been hit by a broad consumer spending squeeze, Tesco admitted its own price strategy had been its undoing in the run-up to Christmas as it failed to bring in enough customers with its £500 million price-cuts campaign. The update - which revealed a 2.3% decline in like-for-like sales excluding VAT and petrol in the six weeks to January 7 - forced City analysts to slash their full-year profit forecasts by as much as 15%.
Home Retail reported an 8.8% plunge in like-for-like sales at the 750-strong catalogue chain Argos in 18 weeks to December 31, but said cost cuts have kept it on course to meet the City's forecast for profits of around £100 million in the year to February 28.
Mothers-to-be, babies and children's goods group Mothercare, which runs around 350 stores in the UK, said that like-for-like sales in its domestic market were down by 3% in the 13 weeks to January 7. The figure is better than the 7% decrease reported in August and included a 5% increase in December. Thorntons, which has 574 wholly-owned and franchise stores in the UK, said like-for-like sales fell by a worse-than-expected 4.2% in the 14 weeks to January 7.