Retail Sector Ripe for Recovery


LONDON -- There are definitely some sectors looking cheap right now, and the Motley Fool report "Top Sectors Of 2012" identifies three that should come up smelling of roses in the next few years -- you can get a copy of it here, while it's still available for free. But it's also looking like the retail sector could be moving on up.

A new report from the U.K. Office for National Statistics (ONS) has revealed that retail sales for June were up a little. Total sales volumes were only up 0.1% from the previous month, but they were 1.6% higher than sales in June last year, which is a significant improvement.

Clothing sales
It seems the Jubilee celebration was a bit of a disappointment, with the long weekend apparently adding little to the nation's shopping baskets. And had June's weather been better, sales might well have been further ahead -- but as it was, the rain led to washed-out food sales, while clothing sales were boosted by competitive pricing.

By comparison, earlier this month we heard that at Marks & Spencer (ISE: MKS.L) , it was non-food sales that were suffering, with like-for-like sales down 6.8%, as the once-mighty chain continues with its refocus plan.

While M&S shares have been having a tough time, falling around 20% from their earlier peak, fashion competitor Next (ISE: NXT.L) has seen its shares pushing new 52-week highs all month, and they're now over 30% up over the past year. And rival department store operator Debenhams (ISE: DEB.L) has seen its shares grow by a similar amount over the same period.

The European Football Championships might be expected to have boosted sales at our sporting goods retailers, and full-year sales at Sports Direct did rise by 13%, with profits up 28% -- but troubled rival JJB Sports had a poor time of it, as it struggles for cash to stay afloat.

DIY and electronics
In the DIY business, we heard this week that Kingfisher (ISE: KGF.L) , the owner of the U.K.'s B&Q and Screwfix outlets, has had a decent quarter with sales up 1.1%. That was a little behind estimates, which held the shares back from what would probably have been a nice rise.

Electronics retail is another sector that has seen some stop-go confidence coming and going, with Dixons Retail (ISE: DXNS.L) shares picking up since January, but still being somewhat volatile.

So what are these companies looking like on a fundamental basis? Latest forecasts for the next two years look something like this.


P/E This Year


P/E Next


Marks & Spencer















Sports Direct










Dixons Retail





Forecasts are 2012/2013 for Debenhams, with the others being 2013/2014.

With the exception of Dixons, those are all looking like pretty healthy prospects, though firm favorites Next and Sports Direct are looking more fully valued than the rest.

A solid sector?
Those are the kind of dividends that help support many a long-term portfolio, but which is best? Well, I think there is more negative sentiment toward M&S than it deserves, and at this uncertain time in the company's turnaround strategy, it could be time to buy up an oversold bargain.

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Alan does not own any shares mentioned in this article. The Motley Fool has adisclosure policy.
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