At first glance, today's official retail sales figures looked quite good. But scrape below the surface, or listen to DIY merchant Kingfisher, and you'll see how tough it really is...
Just how tough has it really been on the high street recently?
Not bad and getting better, according to the latest UK retail sales figures, with the highest monthly gain for eleven months.
But ask Kingfisher
(LSE: KGF)
and you get a different response, as Europe's largest DIY merchant has just reported suffering another drop in like-for-like revenues.
At first glance, today's official retail numbers were quite an upside surprise. Compared with analyst forecasts of just a 0.3% monthly hike, January saw seasonally-adjusted overall sales climb 0.8% compared with December, when there was a 0.2% slide. The year-on-year increase was 5.6%.
Electrical goods stores were star performers. They upped their turnover levels through offering annual discounts of almost 15%, the highest since records began in January 1997.
Food sales were boosted 0.7% on the month, the largest lift in five months, on demand for Easter products like chocolate eggs due to the early timing of the holiday this year.
So good news for shopkeepers? Not quite that simple.
The December decline always looked a bit suspect, and a net 0.6% pick-up over the two months together doesn't look too dramatic an improvement. Indeed, over the three months to January, sales grew by just 0.6% compared with the previous quarter, as against the 1.3% quarterly advance seen for the period from August to October.
What's more, non-food sales were broadly unchanged. And overall shop prices were 1.2% lower than a year ago, confirming how much discounting has been necessary to shift goods from the shelves.
Consumers shy away from DIY
On this context it's not so hard to see how Kingfisher has been under the cosh. Europe's largest DIY retailer said that in the 13 weeks ended 2 February, sales fell 0.5% at stores open at least a year. On this occasion, analysts were too optimistic, with the consensus expecting turnover to be 0.4% higher.
Despite the sales shortfall, the group said that full-year profit still matched analysts' estimates, without giving more details.
Same-store sales slid 1.7% at UK market leader B&Q. Kingfisher has revamped some of its outlets to attract more female customers, and aims to modernize 60% of B&Q's ranges and 50% of its store space by the end of the year.
What of the future?
Expecting a "tougher consumer environment", Kingfisher was hardly full of the joys of spring. With Britain experiencing its worst house-price drop since the economy emerged from its last recession in 1992, according to the Royal Institution of Chartered Surveyors last week, the retailer could be right.
And with earlier optimism about China clearly fading, there isn't too much to get excited about on the global growth front.
Yet the retailer is now becoming cheap, with a market worth of just £3.1bn compared with turnover of £8.7bn and net assets of £4.4bn (although more than half of the latter is goodwill). The prospective price to earnings ratio for next year has now fallen to below 12 times analysts' consensus forecasts.
When last writing about the company at the end of November 2007, I suggested that Kingfisher, then at 153p, was starting to enter value territory and that further significant weakness would present a buying opportunity. Particularly if the dividend gets a haircut from the new chief executive.
I'm sticking to that view, though the subsequent 12% decline to around 134p isn't quite enough to persuade me to jump aboard just yet. But I'm watching and waiting...
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