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Dark day for major retailers as disappointing news sends shares sliding across the board

Three major retailers saw their share prices hammered after releasing trading updates
Model shopper on credit card on keyboard
Retailers have been struggling as hard-hit consumers cut back on spending

Thursday has seen yet more disappointments from the retail sector, with even the so-called 'King of AIM' ASOS PLC (LON:ASC) receiving a negative reaction from investors.

ASOS saw its shares tank by 10.9% to 5,788p in early afternoon trading despite a revenue jump in the third quarter as the results missed analysts' expectations.

READ: ASOS shares tank as third quarter sales miss market forecasts

The company’s shares were also hammered as it said its sales growth for the full-year would be at the lower end of its guidance range of between 25%-30%.

ASOS wasn’t the only major retailer to get a rap on the knuckles. 

Furniture stalwart DFS Furniture PLC (LON:DFS) shares dropped 1.9% to 194.8p after it issued a profit warning for the 2018 financial year as the UK’s heatwave and supply chain issues hit fourth quarter sales.

The company said in the final quarter it suffered a disruption to ships bringing made-to-order products from the Far East, while the hot weather led to “significantly” lower-than-expected order intake.

READ: DFS Furniture expects lower 2018 profits after heatwave and supply issues hit sales

A housing market slowdown and a tough retail market were also blamed for the weakness in sales.

As a result, the firm estimated its underlying earnings (EBITDA) for the year would be “below” the £82.4mln figure reported in 2017, with like-for-like sales were expected to fall 3% in the 23 weeks to 7 July and drop 4% in the 49 weeks to the same date.

Another retailer in the red was homeware firm Dunelm Group PLC (LON:DNLM) after saying it expected to take a £3mln hit due to difficulties in offloading its discounted lines in the summer sale.

READ: Dunelm to take £3mln hit as it struggles to get rid of clearance items in summer sale

The reduced gains were also expected to send its gross margins for the year down 90 basis points to 48%, meaning pre-tax profits were forecast to fall to £102mln from £109.3mln in 2017.

As a result, Dunelm’s shares were down 0.3% at 482.6p.

One of the few major retailers to post some good news on Thursday was discount chain B&M European Value Retail (LON:BME), whose shares rose 1.7% to 431.6p after it reported strong revenue growth in its first quarter of 21.4% compared to 17.2% growth in the same period a year ago.

READ: B&M reports strong revenue growth in first quarter but LFL growth faces tough comparable

Tough time for retailers but future looking up

Commenting on the news from retailers on Thursday, Russ Mould, investment director at AJ Bell said the results showed “just how tough it is to be a retailer in the current environment of low wage growth, high debts and brittle consumer confidence”.

He said that ASOS’s share price fall was mainly down to the “big earnings multiples” that shares in more successful retail firms tend to trade at, suggesting that “some of their future success is already priced in and that can open up downside risk”.

He added that while most retailers would be happy with results mirroring those of ASOS, its shares trade at “nearly 60 times forward earnings” so investors were looking for an increase in the company's full year guidance to justify the premium.

For DFS and Dunelm, Mould queried whether their struggles were a symptom of consumers being at “peak stuff” and now prefer to spend money on experiences and not material goods.

Regarding B&M, Mould said that despite a comparatively positive picture, the small growth in like-for-like sales “may be tempering investor’s enthusiasm a little, especially when the stock trades on nearly 20 times earnings with a dividend yield of 2%”.

For the macro picture, he said that an improvement in real-term wage growth (i.e. wage growth after inflation) would make life easier for all retailers as potential customers have more money to spend on consumer goods.

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ASOS plc Timeline

April 12 2016

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