Retail Sector Ripe For Recovery

Published in Investing on 19 July 2012

Will Marks & Spencer lead the retail comeback?

There are definitely some sectors looking cheap right now, and the Motley Fool report "Top Sectors Of 2012" identifies three that should come up smelling of roses in the next few years -- you can get a copy of it here, while it's still available for free. But it's also looking like the retail sector could be moving on up.

A new report from the Office for National Statistics (ONS) has revealed that retail sales for June were up a little. Total sales volumes were only up 0.1% from the previous month, but they were 1.6% higher than sales in June last year, which is a significant improvement.

Clothing sales

It seems the Jubilee celebration was a bit of a disappointment, with the long weekend apparently adding little to the nation's shopping baskets. And had June's weather been better, sales might well have been further ahead -- but as it was, the rain led to washed-out food sales, while clothing sales were boosted by competitive pricing.

By comparison, earlier this month we heard that at Marks & Spencer (LSE: MKS), it was non-food sales that were suffering, with like-for-like sales down 6.8%, as the once-mighty chain continues with its refocus plan.

While M&S shares have been having a tough time, falling around 20% from their earlier peak, fashion competitor Next (LSE: NXT) has seen its shares pushing new 52-week highs all month, and they're now over 30% up over the past year. And rival department store operator Debenhams (LSE: DEB) has seen its shares grow by a similar amount over the same period.

The European Football Championships might be expected to have boosted sales at our sporting goods retailers, and full-year sales at Sports Direct (LSE: SPD) did rise by 13%, with profits up 28% -- but troubled rival JJB Sports (LSE: JJB) had a poor time of it, as it struggles for cash to stay afloat.

DIY and electricals

In the DIY business, we heard this week that Kingfisher (LSE: KGF), the owner of the UK's B&Q and Screwfix outlets, has had a decent quarter with sales up 1.1%. That was a little behind estimates, which held the shares back from what would probably have been a nice rise.

Electronics retail is another sector that has seen some stop-go confidence coming and going, with Dixons Retail (LSE: DXNS) shares picking up since January, but still being somewhat volatile.

So what are these companies looking like on a fundamental basis? Latest forecasts for the next two years look something like this...

CompanyP/E this yearDividendP/E nextDividend
Marks & Spencer9.65.5%8.85.8%
Debenhams9.63.5%8.73.8%
Next12.13.1%11.03.4%
Sports Direct12.52.6%11.73.9%
Kingfisher10.83.6%9.74.1%
Dixons Retail10.90.2%7.51.1%

(Forecasts are 2012/2013 for Debenhams, with the others being 2013/2014)

With the exception of Dixons, those are all looking like pretty healthy prospects, though firm favourites Next and Sports Direct are looking more fully valued than the rest.

A solid sector?

Those are the kind of dividends that help support many a long-term portfolio, but which is best? Well, I think there is more negative sentiment towards M&S than it deserves, and at this uncertain time in the company's turnaround strategy, it could be time to buy up an oversold bargain.

Are you looking to profit as a long-term investor? "10 Steps To Making A Million In The Market" is the latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- while it's still free and available.

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> Alan does not own any shares mentioned in this article.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

SmilingKiller 19 Jul 2012 , 5:02pm

I'm puzzled.

I've gone back a while looking at this contributor's articles in which he has recommended a great many companies, including some which I, as well as Woody Buffrie, own a bit of.

All of the pieces which I selected at random have: "Alan does not own any shares mentioned in this article" at the end.

Are none of them his cup of tea?

Also the Beginners' Portfolio articles, in which we see a graphic, showing the stage just before a buying commitment is made, looks real enough, but again: "Alan does not own any shares mentioned in this article".

If this is a notional, Walter Mitty style portfolio, fine, but maybe this should be made clear. Showing bits of a dealing screen to imply that the deal was done if that is not actually the case, seems less than helpful.

And five hundred quid? Let's buy a thousand shares, or a million, if we're only using pretend money.

Is the author able to say which companies, if any, he holds shares of, or would this be in breach of the Fool's rules?

TMFBoing 20 Jul 2012 , 10:31am

If this is a notional, Walter Mitty style portfolio, fine, but maybe this should be made clear. Showing bits of a dealing screen to imply that the deal was done if that is not actually the case, seems less than helpful.

I've made it clear throughout the series that the Beginners' Portfolio is a notional portfolio for educational purposes, and that no actual shares are being bought. But I'll try to make it clearer in future articles - thanks for the feedback.

Foolish regards,
Alan
TMFBoing

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