Investors in the retail sector should keep a weather eye on Downing Street as an anticipated general election later this year could make for a very miserable Christmas for the sector, analysts have warned.
Broker Peel Hunt said on Tuesday that even in normal circumstances the UK election process generally results in a decrease in consumer footfall into shops across the three-to-four week campaigning period, a particularly damaging outcome at a critical time for retailers to draw in customers.
“Coming into peak trade for the sector, any disruption will be a risk to earnings, particularly if weaker retailers then go into full markdown ahead of Christmas, pulling all retailers down”, Peel Hunt said.
The comments followed the worst September on record for retail sales, according to data from the British Retail Consortium (BRC), which showed a 1.7% fall in like-for-like sales and a 1.3% drop in total sales compared to a 0.7% in the same period last year.
However, despite the “tough” conditions, Peel Hunt said there were still some strong performers such as JD Sports Fashion PLC (LON:JD.), boohoo Group PLC (LON:BOO) and Hotel Chocolat Group PLC (LON:HOTC), adding that they also expected to see progress from clothing seller Joules Group PLC (LON:JOUL) and discounter B&M European Value Retail SA (LON:BME).
UBS “cautious” on ASOS profitability
Meanwhile, analysts at UBS weren’t too confident on the outlook for troubled online retailer ASOS PLC (LON:ASC), saying the weak BRC data suggested the AIM 100 firm would deliver “weaker” sales and margins in its UK market in the first part of its 2020 financial year.
“We expect slower market growth to be a driver of margin pressure for online retailers over the next few years”, said UBS, which currently rates ASOS at ‘neutral’ with a target price of 2,800p.
The key question for the Swiss bank was how much of ASOS’s woes were already priced into the stock, saying that recent discussions with investors had indicated that sentiment was already “very negative” following a series of profit warnings which haven sent the share price down more than 50% in the last 12 months.
In lunchtime trading on Tuesday, ASOS shares were 1.9% lower at 2,346p.