Blackfriar: Troubled retailers getting the shorted end of the stick

Like or loathe the John Lewis TV advertisement featuring the cutesy seven year old boy counting down the days until he can give his parents their Christmas present, the department store chain is doing something right.

Like-for-like sales in the five weeks to December 31 rose an impressive 6.2 per cent. Few other retailers can claim such growth.

Next has ridden the downturn supremely well, but said sales were disappointing during November and December amid fears that the euro zone crisis is damaging consumer sentiment.

Next did not break out like-for-like sales figures for the period between August 1 and December 24, but total store sales fell by 2.7 per cent.

Analysts pencilled in a like-for-like sales drop of up to seven per cent.

It’s not good news for other clothing retailers such as market leader Marks & Spencer, which reports on festive trading next week.

Overall Next and John Lewis are likely to emerge as festive winners, but the question is who will be the losers?

With unemployment at a 17-year high and confidence at a 34-month low, fears are growing of a wave of retail failures equivalent to that which saw Woolworths go under three years ago.

Short sellers – stock market risk takers who bet on which shares will be the ones to fall in the future – are circling a number of retailers.

Number crunchers Data Explorers said retailers now account for six of the top 10 most shorted FTSE All Share stocks.

Carpetright and Home Retail Group top the sector, with over 14 per cent of their total shares out on loan.

Short-sellers borrow stocks to sell them in the hope of buying them back later on at a lower price and pocketing the difference.

Interest in Carpetright has climbed to a record high with almost all supply out on loan.

Mothercare and WH Smith have seen appetite to short their stocks rise by 8.4 per cent and 13.6 per cent in the last month, compared with the 3.4 per cent average short interest across the sector and the 1.6 per cent average across the wider FTSE All Share index.

Some four per cent of Next shares are now out on loan compared with June last year when short interest peaked at over 10 per cent of the total shares.

Some short sellers expect M&S will fail to impress next week, with five per cent of its total shares out on loan and short interest up a fifth over the past month.

Online grocer Ocado, which rocked investors with a profit warning last month, remains firmly in the sights of short-sellers with nine per cent of the total shares out on loan, over two thirds of the stock that can be borrowed.

Even stock market darling, high-fashion, online retailer ASOS has seen the volume of its stock on loan jump by 1.4 per cent to 3.2 per cent over the past week as a handful of funds bet economic woes may hit its young customer base hard.

Next Monday Bradford-based Morrisons will kick off the supermarket sector festive reporting season.

The supermarkets are expected to have enjoyed a good Christmas – we may have stinted on a new outfit for the festive season but we’ve splashed out on the traditional food and drink.

Whatever the festive trading updates reveal, the real test will be January’s sales figures and pundits are predicting that more retailers will go to the wall.

YESTERDAY’S mortgage approval numbers were a classic case of the glass half-full or half-empty conundrum.

For the housing market naysayers, the 52,854 mortgages the Bank of England said were approved in November show a housing market stuck in first gear.

But for the optimists, they were a 12 per cent increase on November 2010, a 23-month high, and evidence the housing market is returning to life.

Blackfriar suspects the reality lies somewhere between the two.

With daily warnings of a double-dip recession and eurozone meltdown, it’s no wonder the market remains far short of the pre-recession level of around 90,000 home loans a month.

Approvals are less than half of the 129,000 mortgages signed off in November 2006.

But they are still considerably higher than the 27,000 loans approved in November 2008, when the housing market troughed.

For home loans to tick up to almost 53,000, a level last achieved in December 2009, suggests a slowly growing army is determined to buy a home, economic Armageddon or not.

And, if the last few years have taught us anything, perhaps returning to the levels seen before the credit crunch isn’t such a sensible target anyway.