Christmas trading: the good, the bad and the ugly

Friday, 10 January 2014
ANALYSIS_ Weakest retail sales for the year in the UK, suspicions on the leadership at the main British high street retailers and heavy discounting that has damaged trading at both shores of The Pond have prompted weak Christmas sales and many profit warnings. In London, the British Retail Consortium and KPMG agreed at pointing out that total retail sales rose by just 0.4pc on a like-for-like basis in the UK in December, the slowest pace of the year without accounting Easter.

Marks & Spencer has had everyone in the City talking for the past weeks, commenting on its efforts to get back on its own feet. Discounting and special offers seem to have failed to aid the ailing trading, as Marks & Spencer has just reported its third consecutive decline in Christmas clothing sales, with like-for-like general merchandise sales falling 2.1pc in the 13 weeks to December 28. However, scrutinised CEO Marc Bolland reiterated that he has the support of shareholders and the board, insisting that “We are absolutely doing the right things for the long-term.”

In the same vein, Mothercare saw its share down by 31 percent after the childrenswear retailer issued a profit warning based on heavy Christmas discounting in the UK and weak economic conditions abroad. Mothercare became the top loser in the London Stock Exchange on Tuesday, losing circa 112 million pounds off the company's market value and having its forecast reduced by one of the house’s brokers, Numis.

New Look on the other hand has enjoyed a 1.5 percent like-for-like sales increase over Christmas, with total sales in the seven weeks to December 28 jumped 2.6 percent and total UK sales were up 2.9 percent. CEO Anders Kristiansen said: “New Look has performed well over this period. After a difficult start to the quarter, on account of an unseasonably warm October, trading returned to more normal levels. However, the festive trading window was smaller this year, with customers delaying purchases in order to seek out the best promotions before Christmas.

Likewise, JD Sports Fashion PLC said Friday that like-for-like sales in the UK and Ireland were slightly better than its 5.8 percent guidance for the 48 weeks to January 4, boosted by a strong Christmas trading period. "Throughout recent years of considerable change and expansion for the group, the core Sports Fascias' proposition has continued to be developed and enhanced. I am delighted that the most recent six weeks' trading has continued to give confidence for the future. I also expect considerable further progress elsewhere in the group in 2014," said Executive Chairman Peter Cowgill in a statement.

Heavy discounting harms retailers at both sides of the Atlantic

Sears, L Brands and Secret, and American Eagle Outfitters have their profit prospects cut after revealing poor Christmas trade. Sears has lowered its expectations, saying now that it expects to make a loss of between 2.01 and 2.98 dollars per share in the quarter to late January, worse than the market anticipated.

L Brands, parent group to La Senza, posted like-for-like sales in December were up 2 per cent from a year ago in the five weeks to January 4 but had to reduce its profit forecast as a result of price discounting.

American Eagle noted down a 7 percent drop in like-for-like sales in December and the retailer now expects quarterly profits to be 26 cents per share, the bottom end of its forecast range. Similarly, American Apparel has issued preliminary sales for the month of December 2013 on total net sales of 60.5 million dollars, behind last year’s. Comparable sales also decreased, a 6 percent.

Finally, Abercrombie & Fitch released its results for the nine weeks to January 4, 2014. The teen apparel house said its total comparable sales, including direct-to-consumer sales, decreased 6 percent with comparable US sales decreasing 4 percent. Largest drop was registered abroad, with a decrease of 10 percent.

Auditors warn on excess of focus on like-for-like sales

Auditors have become an unexpected supporter of ailing retailers in the UK< releasing a joint report that advises against focusing too much on like-for-like sales, being these “problematic” metrics.

"The lack of consistency may cause difficulties for successful retailers if they attempt to answer questions such as 'who won Christmas," said the second annual Audit Insights report on the retail sector put together by the ICAEW, the professional body for accountants.

"There is massive pressure on retailers to produce positive numbers after the Christmas period, as these figures are widely reported. However, care must be taken when looking at the top line like-for-like sales figures released,” summarised key insights of the report Julie Carlyle, a member of the working group which has put together the study and head of retail at accountancy firm Ernst & Young.

“The much publicised differences in promotional strategies over the festive period emphasise the ability of like-for-like sales to mask real performance and raise the question whether we should be looking at like-for-like margin," ‘The Guardian’ quoted Carlyle.

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