The retail note - 28 April 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
3 mins to read
• Solid figures from Carpetright. Like-for-like sales for the 12 weeks to 22 April 2017 were up 1.4%. The floorcoverings specialist flagged that full-year profit would be within the current range of market expectations, albeit towards the lower end. During the period, the business opened three new stores in Liverpool, Leeds and Bath whilst continuing with its store refurbishment programme.
• Wickes owner Travis Perkins posted a strong set of trading figures for the three months ended 31 March. Like-for-like sales at is consumer division (which also includes Toolstation) grew 2.9% in Q1, while overall sales increased by 4.4%. The fact that this year’s figures did not include Easter while last year’s did makes the performance even more impressive.
• Some fairly opaque trading figures from Bunnings. The Australian retail group, which launched in the UK after acquiring Homebase last year, said ‘like-for-like customer participation’ increased 2.2% year-on-year during its third quarter and total sales across the Homebase Bunnings estate reached £245m during the same period. In its maiden half year to 31 December, Bunnings made a pre-tax loss of £28m in the UK on sales of £612m. Restructuring costs accounted for £13m of its pre-tax loss.
Stephen Springham, Head of Retail Research:
Preliminary figures from the ONS show that GDP growth slipped to just 0.3% in Q1. And the retail sector is largely to blame. Retail sales apparently “tumbled” in Q1 as inflation kicked in, an inevitable by-product of sterling’s depreciation in the wake of Brexit, and consumers tightened their belts in response. I would venture that this is a very lazy interpretation of the facts.
Why the Q1 retail sales figures have been interpreted quite so negatively is something of a mystery. Even the ONS seems to have gone out of its way to downplay its own numbers, telegraphing that this marked the “first quarterly decline since 2013 and seems to be a consequence of price increases across a whole range of sectors.” Indeed, retail sales values did decline in Q1 by -0.1% on Q4 and quarter-on-quarter volumes were down -1.2%.
But any retail analyst worth their salt knows that month-on-month and quarter-on-quarter comparisons are fairly spurious, due to the highly seasonal nature of retail spending. True, the ONS does try to make seasonal adjustments to iron out any distortions, but year-on-year comparisons are by far the purest barometers (and even they have certain limitations). Year-on-year Q1 figures actually showed positive growth in retail sales values of 4.7% and in retail sales volumes of 2.6%. It seems very odd to be talking of a “tumble” in retail sales when we are spending nearly 5% more this year than we were last.
The inflation issue is even more murky. Headline RPI has “leapt” to 3.2% and rising food and clothing prices seem to be universally blamed. Delving into the actual numbers tells a less clear-cut story. Yes, there is now inflation across the retail sector, but not on the scale reported. The latest ONS figures imply that inflation in foodstores was around 1.2% in Q1. In department stores it was lower still at 1.0%, in clothing stores just 0.7%. In fact, the only category in the latest ONS Retail Sales Bulletin to report inflation above the headline rate was the only one that isn’t actually retail – fuel. Implied inflation in petrol soared in Q1 by around 16%.
Have no doubt, consumer and retail markets are becoming tougher. But the notion of Brexit-induced inflation reducing spending levels and this slowing down the wider economy is a convenient truth, rather than an actual one. And one that will be hard to square when strong retail sales figures for April are released, as we predict with more than a degree of confidence.