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Comment: Beyond like-for-like sales comparisons
Tue, 07 Feb, 2012
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Comment: Beyond like-for-like sales comparisons
Fri, 3 Jul 2009, 18:49:00
It's been a busy week for consumer stocks with Marks & Spencer's results the most high profile announcement, and once again the market has fixated on like-for-like sales, almost to the exclusion of all else. <b>Marks & Spencer</b>'s UK like-for-like (LFL) sales fell 1.4% but the shares surged because investment analysts had braced themselves for a LFL decline of between 1.8% and 3.5%. For the longer term investor the quarterly sales figures are just so much noise. Though the likes of Primark and Next may chip away at Marks's market share in the clothing sector, the company has seen challengers come and, if not exactly go, then in the case of British Home Stores and Matalan, effectively give up any pretensions to toppling Marks's crown. Away from the like-for-like sales numbers Marks saw its online sales jump 28% while its overseas division saw revenue growth of 15.9%. These are surely the areas where M&S will be looking to drive profitability over the next few years, especially if it wants to see off the challenge of the likes of online fashion retailer <b>ASOS</b>. This week ASOS's share price hit reverse after the company reported sales growth in the 13 weeks to 26 June of 52% (the company does not do LFL sales figures because, as an online retailer, it does not have to exclude the effect of newly opened stores). Leaving aside the fact that M&S and just every other major High Street clothing retailer would be ecstatic about a 52% jump in turnover, the market had become used to triple digit growth, hence the punishment the share price took. Chief executive Nick Robertson told ShareCast the lower sales growth was due to the company taking stock planning measures that accounted for a more difficult retail climate. "We didn't approach the new year with the same gusto as we did in the past," he said. Robertson added that, unlike many others, he did not see any green shoots, quipping that perhaps he should go to Specsavers to get his eyes tested. The number of ASOS's active customers rose by 68% in the year to end of May, and chances are that many of these customers are not seeing any green shoots, either, but they are still buying, and they will buy in greater quantities once the recession ends. Robinson pointed out that the age range ASOS targets, 16 to 34, has been hit particularly hard by rising unemployment. Meanwhile, international sales rose 303% in the year to 31 May, which even Marks & Sparks would concede <i>is no ordinary sales growth</i>. One retailer especially irked by the market's obsession with LFL sales this week was <b>Game Group</b>, the computer gaming chain. It reported a 15.4% drop in like-for-like sales in the 21 weeks to 27 June but said it remains confident in the outlook for the full year. Top line growth may have turned into top line contraction but to a certain extent the company is hostage to what the computer gaming publishers and hardware companies release. At the moment, the computer gaming console cycle has probably peaked, with gamers awaiting new offerings from Nintendo, X-Box and Sony. In the meantime, <i>Wii Fit Plus</i>, <i>DJ Hero</i> and sequels to best-sellers such as <i>Pro Evolution Soccer</i> are in the pipeline for the second half of the year. The company is planning to open between 50 and 60 new stores before Christmas; these won't count this year towards like-for-like figures but the tills will still be rattling with money, especially now that Woolies and Zavvi are no longer around to siphon off trade. The company also expects to improve margins by between 1.5 and 1.75 percentage points and to save £16m from the integration of the GameStation stores it bought last year, so the short term picture is not as bleak as the share price reaction may suggest. In the medium term, as a Game Group shareholder I would be more worried about <b>HMV</b> muscling in on its gaming territory, while in the longer term the real danger to Game's business model comes from the success of online gaming (<i>World of Warcraft</i> has more than 11m online players) and digital software delivery from the likes of Steam, a digital library of gaming software.
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