Retailers await first tax rises impacts

Wednesday, 05 January 2011

Much of Wednesday's focus was on the retail sector, with the first important festive updates out yesterday. Fashion outlet Next was first up, reporting a 6.1% slide in like-for-like sales in the five months leading up to Christmas. Amid early worries, FashionUNited Top 100 Index closed yesterday at 1,239.6, down by 15.77 points.

Next cited the inclement weather in December as a 'significant' obstacle, which meant it lost out on £22 million in sales. “We now estimate that full year profit before tax will be in the range of £540m to £555m and is in line with current market expectations. This would represent an increase of between 7% and 10% on last year. Earnings per share have been enhanced through cash generation and share buybacks. Assuming profits fall within the above range, EPS will be between 15% and 18% ahead of last year” summed up for analysts and investors in a corporate note yesterday.

Despite their statement however, Next appeared in the FTSE 100's top five stocks, rising 35p (+1.74%) after standing by its profit estimate for the 12 months ending in January. Next, which expects profit to rise between 7% and 10%, said Internet trading remained strong. It also appeared among the 5 winners of the FashionUnited Top 100 Index, with a final gain of 1.49%.

Concerns over high street Christmas trading and lower commodity prices have called a halt to the new year rally as the FTSE 100 Index sunk into the red. B&Q owner Kingfisher, Marks & Spencer and Primark parent Associated British Foods were among those on the back foot after Next said pre-Christmas snow cost it £22 million and music chain HMV reported a 13.6% drop in like-for-like sales in the UK and Ireland. Burberry also declined, off 27p to 1115p. However, M&S (+0.88%) and JD Sports Fashion (+2.5%) also offered a good performance, appearing side by side with Next in the international fashion index 5 top stocks Wednesday.

On the opposite tip of FU Top 100 they were Ted Baker, which dropped by 2.58%, H&M, losing 0.36% and surprisingly entering the red zone within the international apparel benchmark; above mentioned Burberry and Provogue India completed the losers' chart, led by German Triumph, which saw cuts down to -10.3%.

At the other side of the Atlantic, BlackRock, which invests $3.45 trillion (£2.2 trillion) for customers, expects the S&P 500 to finish this year at 1,350 or beyond. It closed yesterday at 1,266.

The lure of higher share prices and signs that the economy is strengthening will accelerate an exit from bonds that began last month, according to Bob Doll, BlackRock's chief equity strategist.

"2011 will see much healthier growth because it will be based on final demand (from the consumer)," Mr Doll said. "For some people who are as bearish on the US consumer as they were two years ago, my comment is that they haven't done their homework."

A combination of more quantitative easing from the Federal Reserve, tax cuts and stronger economic data propelled the S&P to its best December since 1991, and Mr Doll cautioned that the rally may have "taken some of the sting" from the gains that might otherwise have been made this year.

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