Shares in Next Plc (LON:NXT), Marks & Spencer Group PLC (LON:MKS), Pets at Home PLC (LON:PETS) and B&M European Value Retail (LON:BME) dropped after Citigroup said they were its least preferred stocks.
In a note on the retail sector, Citi cut its rating on Next to ‘sell’ after the company said 2017 was its toughest period in 25 years, blaming the shift towards online shopping and the impact of higher inflation on disposable incomes.
READ: Next's toughest trading period in 25 years underlines high street struggles, say analysts
The brokerage downgraded the rest of the stocks to ‘neutral’ in a note. It also lowered ASOS plc (LON:ASC) to a ‘neutral’ rating.
Shares in Next declined 2.3% to 4,707p in morning trade while M&S fell 2.9% to 265p, Pets at Home dipped 2.2% to 169p and B&M slid 2.6% to 385p. ASOS shares were little changed at 6,978.
Retailers have been hit by a slowdown in consumer spending and weak high street sales, prompting M&S and New Look to announce plans to close stores and Toys R Us entering administration this year.
READ: M&S to shut six UK stores by the end of April, with a further eight stores also identified for closure
Opt for online over offline retailers, Citi tells investors
The brokerage said investors should buy online retailers over bricks and mortar stocks as consumers increasingly opt to use the internet for shopping.
Amid a tough UK retail market, Citi also recommended European-focused companies and prefers brands over retailers.
“In the UK our HAC (household available cashflow) gives +0.4% implied LFL (like-for-like sales growth) in 2018 and +0.9% in 2019 - broadly unchanged as wage growth offsets inflation and interest rate rises,” Citi said.
“Continental Europe looks better with robust +2.0% LFL sales growth expected in 2018 and 2019.”
Citi upgrades Halfords to 'buy'
Citi’s most preferred stocks include German fashion brand Zalando, sportswear company adidas and Zara owner Inditex.
READ: Keen cyclists help to boost winter trading at Halfords
The broker also favours electronics retailer Dixons Carphone Plc (LON:DC) and cycling and car parts firm Halfords Group plc (LON:HFD). Citi raised its rating on Halfords to ‘buy’, sending its shares up 1.3% to 339.40p.