Positive retail trading statements plummet to two year low
A review of all the retail trading statements issued on the London Stock Exchange (LSE) during the second quarter of 2007 has revealed that the number of positive trading statements issued plummeted to lows not seen for nearly two years.
In addition, the number of negative trading statements increased to levels not recorded for 15 months, suggesting that the sector’s recent buoyant results may be over, according to new research issued today by Grant Thornton’s retail services team.
The Grant Thornton Quoted Retail Companies Index* has shown that nearly one third (31%) of retailers issued positive trading statements between April and June 2007 (down from 44% in the first quarter of the year). This is the lowest such figure since the third quarter of 2005, when only 22% of listed retailers issued positive statements. Compounding this result is the increase in the number of negative trading statements issued, which increased to 19% (up from 10% in the first three months of 2007). This was the highest figure seen since the first quarter of 2006.
David Bush, Head of Grant Thornton’s Retail Services team says: “While some may have predicted a slight downturn in results, only doom-mongers could have predicted such a dramatic decrease highlighted in this quarter. The past few years have been a rollercoaster ride in terms of results for UK retailers. We had definitely hoped that results were on the up and that retailers had managed to shake off the difficult trading conditions that they have experienced in the past. However, this quarter paints a very different picture, and the results are clear evidence that May’s interest rate rise has begun to have an impact along with the cumulative impact of the other interest rate rises since last Summer.”
“On a more positive note, a proportion of these negative results can be attributed to specific sectors such as music, clothing and consumer electronics,” he continues.
Grant Thornton’s Quoted Retail Companies Index also pointed to a fall in the number of retailers reporting increases in like-for-like and total sales. Increases in total sales fell to 78% of all retailers (down from 85% in quarter one) and, similarly, like for like sales fell to 65% (down from 74% in the first three months of this year).
Food vs non-food retailers
When delving further into the results and separating them into food and non-food retailers, an unmistakable dichotomy begins to emerge with the food sector head and shoulders ahead of its rivals.
Every listed food retailer on the LSE (100%) experienced an increase in like-for-like and total sales during the quarter. In addition, not a single profit warning was issued by food retailers.
However, non-food retailers saw increases in like-for-like and total sales fall considerably and, to make things worse, profit warnings experienced were at similar levels to the previous quarter.
“Food and drink retailers continue to go from strength to strength in the UK and have benefited from strong consumer demand over the past quarter,” says Bush. “A number have even managed to introduce some selling price increases over the past quarter. However, for non-food retailers, a stark contrast is emerging, with consumers evidently cutting back on big-ticket, discretionary spending,” he continues.
“I believe that one further interest rate rise will be required to find the tipping point where consumer demand is sufficiently choked off to reduce pressure on overall government inflationary targets,” says Bush. “For that reason, I anticipate that the MPC will increase interest rates tomorrow,”
