Lies, Damn Lies and Retailers’ Xmas Trading Statements
Official ONS retail sales figures for November. Christmas trading figures from John Lewis and Next – and the pitfalls of reading too much into post Christmas trading updates generally. And perspective on ASOS’ pre-Christmas wobble.
5 minutes to read
- Official retail sales figures from the ONS for November presented a far less bleak picture than anticipated, albeit with major variances across sub-sectors. Overall retail sales values (exc fuel) increased by 4.4% year-on-year, while volumes (i.e. net of inflation) were up 3.8%. Foodstore sales values grew by 2.3%, while non-food sales were up by 4.3%, driven by strong demand for household goods / electricals (+10.5%). But clothing sales were very subdued (+0.1%). Our Q4 predictions (values up by 3.5% to 4.0%, volumes up by 2.0% to 2.5%) remain unchanged and may even be conservative.
- Evidence from John Lewis & Partners that there was a late consumer demand spike in the run up to Christmas. The department store arm saw total sales rise 4.5% year-on-year in the week to 29 Dec, on top of a 4.2% uplift in the week to 22 Dec. Waitrose posted a 19.2% jump in sales during the week to 29 Dec, although it said the figures were “heavily distorted” by the timings of Christmas and New Year (e.g. the previous week, it experienced an 11.8% decline in sales). The Partnership’s full trading update will be released on 10 Jan.
Stephen Springham, Head of Retail Research:
The media have returned their verdict – Christmas was a disaster for retailers. To be fair, they had made up their minds long before they had the ammunition of conveniently negative footfall data and a couple of early casualties in the shape of HMV, Greenwoods and Blue Inc (not the first time any of these three have collapsed). The name of the media game over the coming weeks will inevitably be picking out any crumbs of negativity they can from the slew of post-Christmas retailer trading statements.
I always caution against treating Christmas trading statements as gospel. The figures are unaudited and retailers have a lot of latitude in selecting what message they want to put out. The key lever that retailers have is selecting the actual period they report on.
A difference of just one day could easily factor in or factor out a soft or challenging year-on-year comp and could conceivably skew figures by 20%+. Retailer Christmas trading statements therefore need to be treated with an element of caution – not a complete fabrication, but only one version of the truth.
Also worth flagging is the fact that most trading statements will major on sales rather than profit data. Only in the event of a profit warning will we get much of a steer on profit performance. And this is highly significant this time around as I think, when all is said and done, sales held up far better than many feared, but at the expense of margin.
Next’s trading statement is generally one of the exceptions to the rule. And, helpfully, it is always one of the first to be released. But it shouldn’t be necessarily treated as a bellwether for the whole retail sector, as it is one of the best-managed retail businesses out there and will undoubtedly out-perform many of its peers. But any analyst or journalist (especially) would do well to read the full 3 page release.
What did we learn from Next’s statement? The headline figures were broadly positive, with full price sales up 1.5% on last year (although there was a slight shift in reporting period, from 24 December traditionally to 29 December this time).
The split between Online (+15.2%) and Retail (-9.2%) will no doubt be interpreted as evidence of further migration from the high street, when the reality is that the two sides of the business work in tandem (e.g. more than 50% on Online sales are collected in store and presumably a high proportion of Online returns go back through stores). Indeed, as one of the best exponents of multi-channel retailing, it is frustrating to see Next continue to impose such an artificial dividing line in reporting its figures.
Reassuringly, full year sales guidance remained unchanged (+3.2%) and central guidance on full year profit was trimmed by just 0.6% to £723m. This was on account of two factors – a slight shift in margin mix towards seasonal products and increased operational costs associated with higher than expected Online sales.
The latter a timely reminder online growth does come at a price. Brexit did get a fleeting mention, although the accompanying narrative (“we have not factored into our sales estimates the potential benefits of a smooth transition or the downsides of a disorderly Brexit”) speaks volumes as to the UK retail sector’s general sang-froid to macro-level economic and political uncertainty.
But the real devil was in the detail of weekly sales trends. These shed considerable light on trading patterns in the second half of the year, particularly how tough it was for fashion retailers in November in the face of unusually mild weather. In a very basic but highly revealing graph, Next’s full price sales showed negative year-on-year three weeks out of four in November, with another slight downtick in the first week of December.
These are broadly consistent with the ONS figures for November, which showed that fashion volumes were up by just 0.4%, with value growth a meagre 0.1%. So, deflation on the back of heavy discounting and simply not enough growth to go round.
This certainly put ASOS’ pre-Christmas profit warning into sharp perspective. There was definite over-reaction to this and some of the conclusions that were drawn were frankly baffling. Some questioned whether this marked the beginning of a slowdown of online growth generally, others just assumed that if ASOS was struggling, its store-based rivals must be doing infinitely worse.
There’s not much substance in either of these assumptions. The fact is that ASOS is (and remains) a very strong retailer because it has very strong fundamentals (it is focussed, it understands and values its customers and gives them what they want) and the fact that it is an online pure-play is largely incidental.
Perhaps this was an overdue wake-up call that online is an integral part of the retailing landscape, rather than an independent, invincible force. As such, retailers such as ASOS are as exposed to the vagaries of consumer demand as their store-based competitors. And equally mercy to the fickleness of stock markets.