Sunday 16 January 2011 9:37 pm

Snow losers for traders looking for volatility

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THE Christmas trading results branded companies as either winners or “snow losers” last week. Tesco shocked the market by offering figures that analysts felt paled in comparison to Sainsbury’s. Thanks to 12,000 tonnes of grit, the supermarket deserved to take the title of winner of the festive race. Toy, clothing and leisure retailers also offered numbers that threw expectations, both positive and negative. It would be unfair to conclude that the “snow losers” were looking to use the weather to excuse their poor performance. An uneven retail climate is likely to continue – offering opportunities for spread betters.

Home Retail Group, owner of Argos and Homebase, is the perfect example of how the sector is moving at the moment. It experienced a relief rally on Thursday, rising 10 per cent after avoiding a profit warning in its Christmas trading statement. While the management professed that the snow had disrupted sales to the cost of £30m, it said Argos’s laptop and toy sales meant gross margins only fell 25 basis points, and that allowed for pre-tax profits predictions to remain in the “mid-range” of expectations.

CMC Market’s Michael Hewson says we should expect “quite a bit of chop,” in retail stocks, “with a bias towards the downside,” the results swerving at the whim of consumer sentiment thanks to the VAT rise and the impact of austerity measures. This he believes will give supermarkets an advantage: “VAT doesn’t affect food and people have always got to eat.”

IG Index’s David Jones agrees but doesn’t think the budget cuts will have any influence. He expects that share prices will be “broadly flat,” but warns that breaks higher will be difficult to go long on.

Economists present an equally confused picture of UK confidence. Ian Stewart, chief economist at Deloitte, calculates real average take-home pay has fallen 3.4 per cent in the last 12 months. This will certainly take its toll on shoppers’ spirits.

Still, while some December headlines fretted that consumer confidence was on the brink of collapse, shoppers still rushed out to buy televisions, iPads and other luxury big-ticket items ahead of the VAT rise. This kept the headline index of the GfK /NOP Consumer Confidence Index at the -21 level seen in November. Confidence has clearly not entirely dried up.

These mixed signals indicate that choppy months lie ahead, presenting spread betters with plenty of potential for volatility. Traders could profit from watching out for resistance levels for early buying or selling opportunities. Retail’s next quarter is bound to be an interesting one.


The electronics retailer Dixons, which owns PC Worlds and Currys, cut its consensus profit forecasts by 20 per cent after a weak Christmas trading statement. Management blamed snow for half of the four percent decline in like-for-like sales. The share price fell by 10.3 per cent on Thursday, and the investment bank Nomura downgraded the stock on Friday.

● Apple iPads sold six times more than the weekly average.

● The Nordic business saw sales growth of 11 per cent, helping to compensate for poor performance in Britain.

The car parts and bicycle retailer Halfords saw its share price plummet on Thursday after warning that profits might be at the “lower end” of expectations.

Like-for-like sales of bicycles fell by 16 per cent in the three months to 31 December, while satellite navigation systems saw sales fall by 18 per cent year-on-year. Managers blamed the cold weather for deterring parents from buying bikes and outdoor toys for children.

● Retail sales overall fell by 6.6 per cent, which in fact beat many expectations.

● Car maintenance sales increased by 12 per cent as customers bought products to cope with the snow, slightly offsetting the loss of bike sales.

The beleaguered video game retailer Game Group reported Christmas sales that were significantly better than expected. The share price rose by 15.7 per cent on the news, though it dropped back slightly on Friday to 69p. HSBC lifted their target share price from 73p to 85p.

● The popular video game Call of Duty: Black Ops and the Kinect motion sensor controller for Microsoft’s Xbox games console both sold well, helping to slow the reverse in total sales.