The government’s very gradual reopening of the economy via its roadmap plan took another big step recently with all non-essential shops and pubs allowed to open for the first time in many months.
Retail reopening raises questions for some
With reports of big queues seen for shops including Primark and Footlocker, is this the time for investors to get back into retail shares? And what could this mean for essential retailers who have been doing well in recent times?
Many will welcome the return of life to high streets in England and Wales as shops and services such as hairdressers and gyms have been able to open, along with outdoor service in pubs and restaurants. Early signs are that activity levels are higher although still slightly below average for the time of year. Few in the sector will care about that. The highly successful vaccine rollout and cautious reopening plan by the government provide much more confidence that restrictions will not return again, and there is also hope that shoppers will be looking to spend some of the cash they’ve saved in recent times.
JD Sports is one non-essential business which appears to have benefited from the reopening with its chief executive reporting good takings. The company also announced full-year figures which showed pre-tax profits not far below those of the previous year, while sales of £6.2bn were actually higher than before. A remarkable performance given the disruption caused by lockdowns and shop closures. Much of the credit for that goes to the company’s growing US business, which have benefited from the cash given widely to citizens as part of the US government’s economic stimulus packages. Dividends have resumed and the shares recently rose above the position they were in before the pandemic began last year.
For JD Sports and other retailers who appear to be doing well at the moment, it's difficult to know how much of the success is down to the short-term, one-off factors caused by the pandemic and how much is sustainable, long-term growth. The other question that arises for investors is: will the “essential” retailers who have benefited from the lockdowns be able to sustain their growth once all retailers are open and the UK begins to gradually return to normal?
That question is certainly relevant for investors in DIY giant Kingfisher, whose shares have risen 26% over the past month and are trading well above pre-pandemic levels. The company, which owns the B&Q and Screwfix chains, reported strong sales and profit growth in its recent full-year results. It said sales in February and March had remained strong and reinstated dividends, but there was also some caution on the outlook for sales this year.
The rollout of the vaccination programme and reopening of other retail and hospitality businesses could limit its sales growth, especially in the second half of the year. So, while the company does believe that the lockdowns have created many more DIY enthusiasts around the country, and working from home naturally helps their sales, there is also uncertainty about how significant that benefit may prove to be in the longer term.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.