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Home Retail share bounce may fade before Black Friday

Article By: ,  Financial Analyst
November 23, 2015 11:13 AM

Black Friday retailing victims continued to pile up on Monday, with the event itself still days away.

Press reports that Argos-owner Home Retail Group was possibly being stalked by private equity buyers obviously played well for its stock.

But the share remained lower for the month in the wake of a 14% plunge in October, despite rising as much as 7.4% on Monday.

After a shock profit warning on 21st October the stock fell to a more-than-two-year low and multi-year lows in subsequent days.

It came after the firm, which also operates Homebase and Habitat, gave the kind of warning that is becoming all-too-frequent from UK retailers.

It essentially said Black Friday sales risked becoming more trouble than they’re worth.

Large UK retailers, particularly Dixons Carphone and John Lewis, began to complain last year of the distorting effects of the promotions.

Their biggest bugbear is that customer anticipation of Black Friday sales might have begun to distort trading activity far in advance of the events themselves.

In such cases, footfall tends to slip in advance, according to the retailers, and operating profit may take a while to heal from the battering margins take on the day.

“There is no doubt that the huge scale and success of our Black Friday promotion impacted the three weeks that followed”, said Dixons Carphone’s CEO Sebastian James in January.

Home was among the first to raise a red flag on Black Friday 2015 and others like Poundland, followed.

There was no comment from Home Retail on Monday.

Our calculations suggest that typical margins on consumer electronics items, a staple of Black Friday deals, average as high as 10% for the biggest high street sellers of tablets, TVs and so forth.

Assuming margins on these goods dwindle to low single-digit percentages or even lower on Black Friday, and there is unlikely to be any material corporate activity on Home Retail group before 2016, its stock may not get much of a lift from news flow in the near term.

HOME remains close to lows for the year even after Monday’s jump.

The top of its late-October consolidation zone around 111.8 now lies overhead, whilst a descending trend from November 2014 comes in a little higher.

It’s likelier to retain recent support at 103 than see a sustained recovery any time soon.

 

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