UK Retailers Suffer "Worst Christmas" Since 2008 Due To Warm Winter

LONDON (Alliance News) - Unusually warm weather in the autumn/winter season caused misery for the UK retail sector over Christmas, as sales took a hit from poor stock availability and a lack of shoppers.

In fact, according to a report by business advisory firm BDO, UK high street retailers suffered the "worst Christmas" trading period since 2008, in what was the warmest December since records began.

BDO's monthly high street sales tracker recorded a 5.3% drop in year-on-year sales for December 2015, far worse than in December 2014 when sales declined 1.4%. During the last week of the month, sales fell 2.6% year-on-year.

Clothing retailers appeared to be the worst hit, taking a knock to sales of winter fashion lines as shoppers failed to purchase warmer winter clothing.

This, combined with heavy rainfall, seemed to deter customers from hitting the shops in the weeks leading up to Christmas. Fashion stores saw a 5.4% drop in like-for-like sales in the Christmas period, according to BDO.

"Many retailers had held out for a last minute sales Christmas rush that never arrived," BDO's Head of Retail and Wholesale Sophie Michael said.

Earlier this week, analysts had warned of a difficult Christmas trading period for UK retailers after fashion store Next PLC reported sales growth which missed expectations.

Next, which in 2014 overtook peer Marks & Spencer Group PLC to become the UK's most profitable clothing retailer, blamed a combination of unusually warm weather and poor stock availability during November and December on its weaker-than-expected sales growth.

The fashion and homewares retailer said total brand sales rose 3.7% in the year to January 2, falling short of its 4.0% to 6.0% guided growth range. In the 60 days from October 26 to December 24, total brand sales grew just 0.4%.

Given that Next is traditionally one of the better performers in the sector, this prompted analysts to raise concerns that the festive season may prove a disappointment for the UK retail industry as a whole, and that Next's update may have set the template for a slew of even weaker updates to come.

Indeed this has appeared to be the case so far, as M&S on Thursday followed in Next's misery when it reported a huge slump in general merchandise sales in its third quarter.

The FTSE 100-listed retailer said general merchandise sales, which primarily cover clothing and homewares, fell 5.0% year-on-year in the 13 weeks to December 26, while like-for-like sales dropped 5.8%. By contrast, food sales rose 3.7%, or 0.4% on a like-for-like basis, but this wasn't enough to prevent overall sales from declining 0.4%.

M&S's general merchandise business has been struggling for a decade or more as it has failed to appeal to a younger generation of shoppers, but its results on Thursday still came in far lower than analyst expectations.

Like Next, M&S blamed unseasonal weather and poor stock availability on its bad results.

Earlier on Friday, Sports Direct International PLC became the latest retailer to warn on the impact weather has had on trading when it lowered its full-year earnings before interest, tax, depreciation and amortisation guidance.

The sporting goods retailer said that as a result of a deterioration in trading conditions and continuation of unseasonal weather, it thinks it will miss its Ebitda target of GBP420 million for the financial year to April 26, lowering its guidance to between GBP380 million and GBP420 million.

After a weak start to the Christmas reporting season, it is clear that the tough trading conditions go beyond individual retailers and have hurt the broader industry.

With trading updates due next week from the likes of Debenhams PLC, Burberry Group PLC, Ted Baker PLC, SuperGroup PLC and JD Sports Fashion PLC, shareholders will be hoping for less gloom.

"As the new week looms, at least UK investors will have plenty of other trading updates, although they will be hoping that these will be better than the ones from Next and Sports Direct this week," Chris Beauchamp, senior market analyst at IG Group, said on Friday.

By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews

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