What Today’s Results From Next Plc, Home Retail Group Plc, Dunelm Group Plc & Dixons Carphone Plc Mean For Your Portfolio

A stronger UK economy drives improved performance from UK retailers such as Next plc (LON:NXT), Home Retail Group plc (LON:HOME), Dunelm plc (LON:DNLM) & Dixons Carphone plc (LON:DC).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many of the UK’s retailers have reported strong trading performances during recent quarters, and with the market now likely to focus increasingly upon the direction of monetary policy in the near future, today I’m looking first at the individual performances of some of these companies before going on to outline what I think the year ahead has in store for the rest of the sector.

Next

After a strong but volatile third quarter for the shares, Next (LSE: NXT) won’t have disappointed its investors when it announced a 7.5% increase in post-tax profits for the half year this morning.

Management also reaffirmed its earlier guidance for the likely full-year performance of the group, before going on to address the elephant in the room for the retail sector at the moment: the minimum/living wage.    

In terms of anticipated cost inflation, Next has already taken a large portion of the initial hit by increasing its average rate of hourly pay from £6.70 in 2014, to £7.04 in 2015.

With the initial increase in the living wage set to take hourly pay to £7.20 by April 2016, the adjustments already made by Next management do not leave it with as much of a gap to close as many would have expected.

For this reason, it seems that Next is more likely to benefit from the nationwide increase in working pay than it is to actually suffer from it — at least in the short term, that is.

Dixons Carphone

Given the World Cup-driven boost received by last year’s financial numbers at Dixons and a similarly strong performance from Carphone Warehouse, many investors probably would have expected the combined group to struggle to improve on that performance in the current year.

However, today’s numbers appear to have dispensed with any lingering doubt as Dixons Carphone (LSE: DC) reported strong sales growth at the group level during the first quarter, with expansion in the UK division reaching into the double digits.

This bodes well for earnings ahead of half-year results, which are due in December, and the impending launch of the group’s joint venture with Sprint in the US.

Home Retail Group & Dunelm Group 

Almost as if in lock-step with the rest of the sector, both Home Retail Group (LSE: HOME) and Dunelm Group (LSE: DNLM) announced what were at least “reasonably positive” performances for the second quarter and the full year respectively.

In one corner, Home Retail “made good progress” in its plan to expand its digital presence into Homebase and J Sainsbury, while the Homebase division also recorded a strong sales performance during it’s peak trading period (H1).

However, the budget catalogue retailer Argos is reported to have struggled amidst a “weaker overall market” and the “performance of several electrical categories.  

Meanwhile, in the other corner, the upmarket Dunelm also announced a better-than-expected full-year result, prompting a 6.6% increase in the final dividend and some positive guidance from management for the year ahead.

When combined with the March 2015 special distribution of 70.0 pence per share, the final dividend payment announced today brings Dunelm’s total dividend yield to just over 10% for 2015!

Summing Up

Today’s results from Britain’s retailers appear to show that the UK economy remains in full swing — and for those businesses that already pay reasonable wages, it now seems that the Chancellor’s adjustments to the minimum wage could prove to be a boon for earnings, given that a large portion of workers in retail, hospitality and services will soon be enjoying their largest pay increase this side of the financial crisis.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Skinner has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »