Many of the UK’s retailers have reported strong trading performances during recent quarters, and with the market now likely to focus increasingly upon the direction of monetary policy in the near future, today I’m looking first at the individual performances of some of these companies before going on to outline what I think the year ahead has in store for the rest of the sector.
Next
After a strong but volatile third quarter for the shares, Next (LSE: NXT) won’t have disappointed its investors when it announced a 7.5% increase in post-tax profits for the half year this morning.
Management also reaffirmed its earlier guidance for the likely full-year performance of the group, before going on to address the elephant in the room for the retail sector at the moment: the minimum/living wage.
In terms of anticipated cost inflation, Next has already taken a large portion of the initial hit by increasing its average rate of hourly pay from £6.70 in 2014, to £7.04 in 2015.
With the initial increase in the living wage set to take hourly pay to £7.20 by April 2016, the adjustments already made by Next management do not leave it with as much of a gap to close as many would have expected.
For this reason, it seems that Next is more likely to benefit from the nationwide increase in working pay than it is to actually suffer from it — at least in the short term, that is.
Dixons Carphone
Given the World Cup-driven boost received by last year’s financial numbers at Dixons and a similarly strong performance from Carphone Warehouse, many investors probably would have expected the combined group to struggle to improve on that performance in the current year.
However, today’s numbers appear to have dispensed with any lingering doubt as Dixons Carphone (LSE: DC) reported strong sales growth at the group level during the first quarter, with expansion in the UK division reaching into the double digits.
This bodes well for earnings ahead of half-year results, which are due in December, and the impending launch of the group’s joint venture with Sprint in the US.
Home Retail Group & Dunelm Group
Almost as if in lock-step with the rest of the sector, both Home Retail Group (LSE: HOME) and Dunelm Group (LSE: DNLM) announced what were at least “reasonably positive” performances for the second quarter and the full year respectively.
In one corner, Home Retail “made good progress” in its plan to expand its digital presence into Homebase and J Sainsbury, while the Homebase division also recorded a strong sales performance during it’s peak trading period (H1).
However, the budget catalogue retailer Argos is reported to have struggled amidst a “weaker overall market” and the “performance of several electrical categories.
Meanwhile, in the other corner, the upmarket Dunelm also announced a better-than-expected full-year result, prompting a 6.6% increase in the final dividend and some positive guidance from management for the year ahead.
When combined with the March 2015 special distribution of 70.0 pence per share, the final dividend payment announced today brings Dunelm’s total dividend yield to just over 10% for 2015!
Summing Up
Today’s results from Britain’s retailers appear to show that the UK economy remains in full swing — and for those businesses that already pay reasonable wages, it now seems that the Chancellor’s adjustments to the minimum wage could prove to be a boon for earnings, given that a large portion of workers in retail, hospitality and services will soon be enjoying their largest pay increase this side of the financial crisis.
