Are you sitting comfortably? Then I'll begin. Sofa seller ScS Group PLC (LON:SCS) has posted another solid trading update.
The group achieved year-on-year like-for-like (LFL) order intake growth of 2.2% in the 26 weeks to January 27.
READ: ScS posts 10% jump in profits thanks to retailer's continued sales growth, cost-saving initiatives
The core ScS business saw LFL order intake growth of 2.5%, but the House of Fraser concessions, which racked up 7.4% of the group's order intake in the reporting period, saw LFL orders decline by 0.4% from a year earlier.
The group said it had traded in line with expectations in the first half of its financial year, including the key winter sales period.
Fears allayed?
“We believe the group's increasing resilience and value proposition will enable us to manage the continued economic uncertainty and take advantage of opportunities,” the group said in a brief trading statement.
Independent retail analyst Nick Bubb noted that, following the recent profit warning from Carpetright, ScS shareholders might have been a bit apprehensive before today's trading update but should be reassured by the statement.
“No doubt the management team will say more about all this next week when they take analysts to see the new store that opened in Chelmsford on Boxing Day,” Bubb said.
House broker Shore Capital said the group had delivered a strong sales performance in the first half of the year “despite what has been a largely challenging trading environment in bigger ticket UK discretionary spend market”.
It has upgraded its full-year forecasts for fiscal 18 after the LFL order intake growth of 2.2% in the period came in ahead of its expectations.
The earnings per share forecast has been increased by 5%; sales and profits estimates have also been hiked.
“We believe it is reasonable to assert that ScS has gained share in a challenging UK market,” the broker said.
It notes that, based on its forecasts, ScS is trading on a projected earnings multiple of 8.2 and offers a dividend yield of 7.6% that is covered 1.6 times by projected earnings and 1.7 times by free cash flow.
“That ScS is delivering growth in the current market highlights the strength of its retail proposition and capability of its management, in our view; therefore, we believe this suggests its valuation remains at an unwarranted sector discount and if the business can continue to deliver then it suggests there is strong potential for a re-rating,” Shore Capital said.
Shares in ScS were up 5.5% at 213.15p late in the morning.
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