UK retail sales – as hot as the weather?
Official retail sales figures from the ONS for June and Q2 as a whole, full-year trading figures from Sports Direct and Hotel Chocolat and end of the road for Poundworld.
4 minutes to read
- Plenty of overly-gleeful Mike Ashley bashing in the media in the wake of Sports Direct’s annual results. Most majored on the fact that pre-tax profit plummeted 72.5% to £77.5m on the back of an £85m writedown on his 30% stake in Debenhams (itself the victim of extensive press baying). Underlying pre-tax profits actually rose 34.5% in the year ended 29 April. UK sales dipped 2% (-0.6% on a like-for-like basis), but overall group revenue increased by 3.5% to £3.36bn, driven by markets outside Europe.
- Hotel Chocolat’s credentials as one of the strongest brands on the high street have been consolidated by another year of strong trading. Group revenue for the year ended 1 July increased by 12% to £116m, helped in part by 15 new store openings. These accounted for around half the revenue growth, the remainder coming from a combination of existing sites and online (its online customer base growing by 200,000 over the year).
- Rescue bids for Poundworld appear to have failed. The warehousing operations have already shut and a further 78 stores will close over the next week or so. As things stand, the residual 112 stores will cease trading by 10 August. The retailer operated 335 stores and had 5,100 employees when administrators were appointed last month. Deloitte said that discussion between interested parties “for the potential sale of parts of the remaining business” are ongoing. If nothing materialises, the business will go the same way as Toys ‘R Us, Maplin and East. And, yes, all four are/were private equity-owned.
Stephen Springham, Head of Retail Research:
As with plenty of other things this week, the media have got it very wrong with the latest retail sales figures. By any account, the numbers were strong. But any positive newsflow on the retail sector obviously jars with the general media narrative, so many opted not to cover the latest ONS release at all. More disappointing still, those that did cover it woefully miss-reported the numbers. Born of malice or base ignorance, the media continue to do retail few favours.
To focus on the month-on-month figures rather than the year-on-year ones is the most basic of schoolboy errors, yet journalists and indeed, many economists, still fall into this trap. Retail is seasonal in a way that the wider economy isn’t. And, surprise, surprise the month-on-month headline figures were the only negative ones in the whole release (-0.7% in value, -0.6% in volume). But June’s figures need to be put in the context of an exceptional May, when year-on-year values were up 6.1% and volumes 4.4%. The media game of ignoring a strong month and then picking up on seemingly weak month-on-month comparison the following month really needs to be called out.
So, what did the meaningful figures from the ONS actually say? Year-on-year retail sales values (exc fuel) were up a very healthy 4.4% in June. Better still, retail sales volumes (exc fuel) were up by 3.0%. The narrowing gap between value and volume growth points to decelerating inflation and accelerating ‘real growth’. In layman’s terms, the market is growing not just because prices are going up, but more importantly because we are buying more stuff.
Performance, of course, varied by sub-sector. Foodstores’ sales increased by 5.8% in value and 3.8% in volume – further evidence of the sustained recovery we cover in detail in our recent Foodstore Newsletter (see accompanying link). Non Food retail sales saw a more modest uplift of 1.6% with clothing experiencing a 0.4% increase during the month. The DIY sector witnessed particularly strong growth of 15.1 %. The key positive influence to these figures was the prolonged period of good weather that we have been enjoying, rather than the World Cup. The feedback from most retailers has been that the World Cup was actually more a distraction than a benefit (e.g. weekly sales at John Lewis were down 6.2% year-on-year last week).
With the June figures obviously also come the full Q2 figures. Year-on-year retail sales value growth in the second quarter stood at 4.6%, up from 3.7% in Q1. Retail sales volumes were up 2.9% in Q2 vs 1.2% in Q1. At the halfway stage, I would project that for the year as a whole we are looking at growth of 4.5%-5.0% in value and 3.0%-3.5% in volume.
Presumably newspaper circulation figures and media advertising revenue growth are much higher than this? I thought not.