Curry’s, Asos and Sainsbury’s top retail stocks this Christmas

For investors who wish to make a seasonal adjustment on their portfolios City Take a look at the analyst picks for retail stocks that you should be watching closely over the next few weeks.

Hargreaves Lansdown’s analysts picked Curry’s Asos and Sainsbury’s for the top three retail stocks to watch this Christmas.

This comes as retailers have had the task of balancing consumers’ desires to enjoy their Christmas without Covid-19 restrictions within three years and shoppers’ concerns about the rising cost-of-living.

Curry

Currys issued a dire warning about earnings earlier in the month. Its chief executive also warned that the “harsh environment” showed little sign of fading in the short term.

Matt Britzman, Hargreaves Lansdown equity analyst, said that the London-listed retailer serves “an excellent indicator of the technology sector of the retail industry” due to its position on the market.

While the electronics company sells high-priced items — such as televisions and laptops — that are “just the sort of” item chosen as a Christmas gift, its price points mean that “demand may be in a pinch if household income drops,” Pritzman says. added.

Technology products are also known for having short production cycles. For example, the iPhone has a new model each month.

“If cash-strapped consumers decide not to upgrade their model this Christmas, Cary’s will have a surplus of new iPhones,” Pritzmann added. It’s a cycle that causes inventories to rise and eventually discount, which should put pressure on profit margins. “Really small.”

Despite the pressure on margins the retailer has some silver linings such as its omnichannel business model.

Pritzman said, “You can visit a store to access our entire online shopping selection or talk to an expert in-store in the comfort of home.”

A dull Christmas can pose a problem for retailers as shoppers love to cash in.

Pritzmann said that the group’s value is much lower than the long-term average because of short-term difficulties.

“While this can be a good entry point for investors willing to accept immediate risk, keep in mind that things could get worse before they get better.”

ASOS

ASOS has also been subject to some turbulent trading updates this past year. With bosses now vowing to reverse the fast-fashion company’s fortunes with a new strategy.

Fashionistas who resorted to online shopping after the pandemic hit have reaped the rewards of the e-commerce company.

Pritzman noted that the picture today looks “very different.”

The retailer’s valuation fell around 78 per cent during 2022, after announcing a full-year underlying profit before tax that fell to £22m, down from £194m a year earlier.

Pritzman stated, “The drop-in profit is partly due cash-strapped customer returning more items in this year’s fiscal year, which causes higher operating costs as well as higher inventory levels.”

Retailers were able to discount in order to reduce inventory levels, which was a major driver of the decline in gross profit margin.

While issues such as the company looking to write off around £115m of equity during the first half of this financial year, “will not be resolved by a strong Christmas performance”, the lucrative sales season “will certainly soften the blow.”

Pritzman stated that consumers with limited cash will be able find products within ASOS’ price range. This “should be a benefit relative to other fashion retailers who usually target one price point.”

He said: “The group’s balance sheet looks to be in better shape thanks to the newly negotiated terms of the credit facility. This gives ASOS some breathing room while it tries to return cash flow to positive territory. Management expects to deliver next year. However, we remain cautious.

“One thing is certain: if ASOS is going t change their fortunes then a strong Christmas period is the perfect present.”

Sainsbury’s

The BIg ​​Four supermarkets have poured in a lot of money to ensure consumers get good deals when shopping for Christmas, with many groceries promising good prices on key products.

“We are cautiously optimistic the grocery sector will report some bright results this holiday period,” stated Sophie Lund Yates (equity analyst at Hargreaves Lansdowne).

Lund-Yates stated that while overall UK retail sales declined in November, food sales rose as shoppers stock up for Christmas. This “suggests consumer behavior can work in favour of groceries.”

Analysts have focused on Sainsbury’s due to its exposure to a wide variety of products.

“General goods are a riskier area of ​​the market when real wages (after inflation) fall,” she explained. “Buying a new gadget or dinner is not as important as eating at the table.”

General merchandise and apparel sales declined by 6.1 percent and 6.1%, respectively, in the first half of the fiscal Year.

Lund-Yates added, “While we remain cautious about Argos’ performance, recent numbers show that store and home sales are holding up a bit better than expected. This could mean that Argos is offering a more resilient proposition than we expect.”

Sainsbury’s has also “cracked back” on pricing, which means that it has recently been able to push prices past its competition, “delivering its strongest value proposition for years.”

Sainsbury’s has been a successful investment, with a 65% increase in share since the pandemic. This is in contrast to main competitors like Tesco, Asda, and Morrisons.

Despite the increased competition, profits were still affected. Underlying operating profit fell 8 per cent to 496 million pounds in the first half.

Lund-Yates said: “No matter how this Christmas goes, Sainsbury’s still has a stronger balance than ever before and free cash flow can be expected to run into the hundreds or millions.”