BRITISH RETAIL STOCKS GET HAMMERED AFTER BLEAK YULE SEASON
Byline: James Fallon / With contributions from Samantha Conti / Arnold J. Karr
LONDON — With a less-than-sterling holiday season behind them, the stocks of British retail companies took a severe pounding Thursday.
U.K. retailers lost more than $3 billion in market value, as analysts downgraded shares following a string of disappointing statements about Christmas business and continuing fears about global economic conditions, especially on the other side of the Atlantic.
The retailers Next PLC, Matalan PLC, Marks & Spencer PLC and Great Universal Stores PLC — owner of Burberry — all suffered.
The statements from Next, Matalan and GUS not only confirmed analysts’ fears about the disappointing Christmas, they also fed concerns that the U.K. is following the U.S. into an economic slowdown.
Elsewhere, in a move to ease investors’ fears about the luxury market’s performance, Gucci Group said Thursday that December revenues at its Gucci division rose higher than 30 percent, to more than $182 million. Full-year results will be announced in the second half of March, the company said in a statement.
The main victim of the British fallout was the discounter Matalan, which has been one of the fastest-growing retailers in Britain over the last 18 months. The company at one point saw its stock market value fall by as much as $2.2 billion after it reported same-store sales rose 16.3 percent in the six weeks ended Jan. 6. Including new stores, sales were up 49 percent.
While the results were strong, analysts were concerned by Matalan’s admission that margins were “slightly lower” after it made the mistake of reducing advertising. As a result, it had to offer large price cuts to clear inventories.
Matalan’s shares recovered slightly on Thursday, but closed down 33.9 percent, at $7.20. This compares with the Wednesday closing price of $10.90.
Next, another fast-growing British retailer over the last few years, Thursday said its same-store sales in the 19 weeks to Dec. 24 were up 6 percent over the previous year and 12 percent higher overall. But the company admitted that, while its sales in the run-up to Christmas were good, “they were below our expectations. As a result, we started our winter sale with more stock than last year, which will result in a maximum charge of $6 million more than we had anticipated.”
The retailer said that the fall-winter stocks left over from its sale would be cleared throughout the year in its Next to Nothing outlet stores.
The news sent the company’s shares plummeting by 12.5 percent at one point, although they later recovered to close only 3 percent down at $11.70. This compares with the Wednesday closing price of $12.06.
GUS, which also has extensive operations in mail-order retailing and data processing, said Burberry’s sales were up almost 35 percent at constant exchange rates in the third quarter ended Jan. 6. The result excludes Burberry Spain, which was acquired by the group in June 2000.
“Burberry retail operations achieved strong like-for-like growth, with the new flagship store in New Bond Street performing ahead of expectations,” the group said in a statement. “The wholesale order books for spring 2001 show continued growth.”
But Burberry is only a small part of the GUS group and its performance wasn’t enough to offset disappointing results at the core home shopping and data processing divisions. U.K. home shopping registered a 5 percent decline in sales in the 14-week period, while underlying sales of the company’s North American data processing operations were down 2 percent during that period. The news sent the shares of GUS down by almost 14 percent at one point, wiping $1.1 billion off the group’s stock market valuation. The shares later fell even further to close down 15.3 percent at $6.93. This compares with Wednesday’s closing price of $8.18.
Marks & Spencer hasn’t issued its Christmas trading statement as of yet, but its shares were caught in the retail sector crossfire. Marks & Spencer has been struggling to turn its operations around over the last two years and there are reports that it had a lackluster Christmas sales period. As a result, the retailer’s shares declined 12.7 percent to close Thursday at $2.96. This compares with Wednesday’s closing price of $3.15.
Meanwhile, Gucci’s retail sales last month were approximately $145 million and rose nearly 40 percent, reflecting the five-week retail calendar in certain regions. On a comparative five-week basis and at constant currency exchange rates, Gucci division retail sales rose more than 25 percent, due to double-digit increases in the U.S., Europe, Japan and the rest of Asia.
Gucci said it made the announcement “because of concerns expressed by the investment community about the recent performance of the luxury retail sector.”
Analysts are generally bearish about the sector, and U.S. retailers — ranging from luxury to mass market — reported a dismal Christmas season.
Earlier this month, Tiffany said year-on-year U.S. sales fell 3 percent in the two months ending Dec. 31.
Claire Kent, a luxury goods analyst with Morgan Stanley Dean Witter in London, called Gucci’s results “strong, especially since they had a tough base to work from.”
She added, however, that while Gucci’s results were encouraging, she was still “cautious” about the luxury sector in general.
The report on December sales follows last month’s disclosure that Gucci Group sales and revenues soared in the third quarter, even though the company acknowledged that profit growth might slow this year.
As reported, the Gucci division posted a 22.6 percent increase in revenue in the third quarter, to $375.1 million, as group sales doubled to $615 million. The group’s net income rose 18.8 percent during the period, to $114.1 million, or $1.12 a diluted share.
The news from Gucci Thursday sent its shares up $1.94, or 2.4 percent, to $82.81 in New York Stock Exchange trading. In a roller coaster ride that has reflected the very jitters addressed by Gucci’s announcement, the company’s shares have ranged from a low of $72.94 to a high of $121.50 in the last year. The high was achieved nearly one year ago, last Jan. 14, as optimism about retail stocks, particularly about luxury goods, peaked. However, as the outlook for high-end goods and soft goods in general worsened, the stock reached its low three months later.
Since then, shares reached as high as $100, briefly in November, but have been below $90 and as low as $80.88 so far this year.