Poor weather puts retailer under strain

By Graeme Dickson
Updated: 12:12 EDT, 26 January 2011

The poor weather did not do any favours for UK retailers. Department store Debenhams (DEB) was no different, with like-for-like sales falling by 1.3 per cent (excluding VAT) in the 19 weeks leading up to 8 January:

If you take into account that gross margin improved by 4.2 per cent, it clearly indicates that had there not been any price increases at the retail end or price reductions on its wholesale purchasing, the like-for-like sales figures could have been much worse.

To the company's credit, it has slightly improved its market share by 10 basis points (or 0.1 per cent) and the company is moving forward on multiple marketing strategies by developing an iPhone application.

It is also developing an online video format and self-serving kiosks, while on the fashion front it has recruited a number of up and coming fashion designers to help broaden its clothing range to a younger market.

Debenhams has 102 per cent net gearing, which is manageable if it can continue to strive forward with improved sales.

However, any further pressures to consumer spending over and above the 20 per cent VAT rate and public spending cuts, such as increased unemployment, is likely to negatively impact the company's fortunes.

Initial support should be found circa 64-66p. A close below this level suggests we should look for 56p. A close above 73p, from my own charting perspective, will invalidate this idea.

Update

McBride – suggested to sell at 160.6p, the shares closed yesterday at 159.8p, having recovered from yesterday's low of 153.5p following PZ Cussons warning about high raw material prices. Continue to hold for now.

Aquarius Platinum – suggested to sell at 338.5p, the shares closed yesterday at 345p. The company is scheduled to issue a trading update on 27 January (not 25 January as was mentioned last week). Hold for now but if it closes above 370p cut the position.

Intertek (ITRK) – suggested to sell at 1799p, the shares closed at 1753p. The stock is starting to attract bears and now the company has made a 'lower low' we should lower the stop from 1950p to 1900p.

Randgold Resources (RRS) – suggested to sell at 5770, the shares have drifted to 4850p: lower the stop at 5350p – the Ivory Coast situation isn't ideal and the drifting gold price is also negative in the short term.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.