January's flurry of Christmas trading statements from British retailers offered some useful lessons on the state of the consumer in the first post-EU referendum holiday season. But for many companies, the missing piece of the jigsaw is what the sales over the crucial period mean for their margins. Investors would do well to be cautious.
British women are still out of love with clothes. As Simon Wolfson, chief executive of Next Plc put it, waning demand for apparel was a bigger headache than Brexit. While Next's poor sales made it one of the season's losers, his sentiment still stands even though Marks and Spencer Plc reported the Christmas miracle of its first increase in same store clothing and home furnishings sales over the holiday for seven years.
Food inflation is finally back. The jury's out on what that means for the big supermarkets. While it could squeeze consumer incomes, as Gadfly has argued, the grocers have to sell fewer tins of beans to generate the same value of sales.
There's been another step-up in online demand. Internet-only players such as Asos Plc and Boohoo.com Plc reported better-than-expected sales and upgraded their full-year revenue targets. Wolfson said conditions were tougher on the high street in the run up to Christmas.
Guidance on earnings was mixed. As well as Next's caution on profit this year and next, John Lewis Partnership said its underlying earnings would be under pressure. That's because of its policy to never be beaten on price, which means it has to match competitors' promotions even when costs from the fall in sterling are rising. In contrast, profit upgrades came from grocers Wm Morrison Supermarkets Plc and Tesco Plc (though this one was minuscule).
Two big factors for margins are discounting and online sales, and what little information we have looks broadly gloomy.
Promotions were a staple feature of the high street, and many stores were advertising special offers. While these were not as extreme as in the run up to Christmas in previous years, and sales were helped by colder autumn weather, discounts will nevertheless take their toll on margins.
For many companies, we are left guessing. Take Sainsbury, for example. Sales at its Argos home goods unit were better than expected, but there was no mention of the impact on margins from all that Black Friday discounting and expensive fast-track delivery.
Still, on this score M&S may be a winner, as it avoided blanket discounts though it did run a series of special offers for its loyalty card holders. That should help lift the gross margin, even though it didn't increase its forecast of full-year underlying pre-tax profit. And Debenhams Plc, which said it reduced the level of discounts, kept its gross margin expectations unchanged, as much of its sales outperformance had come from lower-margin beauty products.
Rampaging online sales, while boosting the top line, also come with a cost. There is not only the expense of delivering goods to customers, but also investment in infrastructure to support internet sales.
That will be another drag on profit at John Lewis this year, as online sales account for about 40 percent of the total at its department store arm. It's a similar picture at Asos -- it's selling more, but increased investment means not all of that benefit will flow through to fatter margins.
In short, retail Christmas trading statements are a bit like the holiday itself, really. There's an excited frenzy of spending before the big day, but you only know the real damage to your wallet once the credit card bills land on your doormat -- much later.
The FTSE retailers' index is down for the year so far. Given the time lag until retailers provide their full profit reports, and the impact of changing consumer sentiment and weak sterling on margins, investors should keep their enthusiasm in check on the outlook for British retailers this year.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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