Shares digital

The British Retail Consortium has confirmed what analysts were forecasting and investors were fearing: Christmas last year was the worst for several years, with like-for-like sales inching up by a meagre 0.3%. Although there have been comparatively few trading statements as we go to press, certain trends are already clear, as difficult markets like the ones we are facing always cause some to suffer falling sales.

The first – maddeningly for investors – is that among the winners were unquoted companies John Lewis and the House of Fraser.

Elsewhere food retailers enjoyed a strong Christmas although both M&S (MKS) and Sainsbury (SBRY) – due to report today – seem to have used the Sunday press to diffuse expectations. Tesco (TSCO) and Morrisons (MRW) appear to have been the grocery Christmas winners. However, even food retailers are facing a difficult 2008 as they wrestle with higher food prices and increased competition from Lidl and Netto at the ‘value’ end of the market.

One of the few winners was Game Group (GMG) which was a beneficiary of the strong demand for Wii, the must-have present last year. Game, whose trading update is due next Tuesday, has already indicated that profits should be well ahead of brokers’ forecasts.

Dunelm (DNLM) apart, there seem to have been few other non-food retailers who enjoyed a good Christmas. Women’s fashion went into reverse as did sales of furniture with Land of Leather (LAN) being a particular victim. Similarly DSG International (DSGI) suffered poor sales of laptops. This year could be even more difficult as the credit crunch bites still further forcing some retailers into bankruptcy. Surprises are likely to be on the downside and investors should be extremely cautious.

Shares says: Be underweight. Avoid retailers specialising in big ticket items and clothing.

by: John Marshall

The writer holds shares in Tesco, Morrison and M&S