Based on the fact that you need to invest in what you know, I’ve been seeing other people shopping for furniture and furnishings lately. This is not a snooping, but a way to gauge consumer confidence ahead of a portfolio makeover.
The fate of home goods retailers depends on people being relatively confident in their circumstances and the prospects for the real estate market.
So this weekend I will be following the activity of one or more of the industry’s UK-listed players such as B&Q (part of the Kingfisher empire), B&M, Dunelm, Marks & Spencer, Next and Sainsbury’s, owner of Argos and Habitat. .
These companies operate in what Dunelm chief Nick Wilkinson called “a new, complex and rapidly evolving economic reality.” They must offer great design, service and value in stores and online to appeal to households on tight budgets.
This endeavor could fail if interest rates continue to rise and inflation persists even longer than expected. But this year I’m betting on the UK market, which many consider undervalued.
The demand for furniture, lighting and the rest is also stronger than feared. Currently, house prices have not fallen as much as predicted, and the pandemic seems to have fostered an even closer relationship with the home and its renovation.
John Lewis’ trials also present an opportunity for his rivals, though they must also strive not to give Amazon even more ground. In the first quarter, the American giant captured an 8.82 percent share of the online home goods market, ahead of Argos with 8.67 percent. Dunelm was third with 4.42 percent.
First quarter sales at Dunelm were up 6.1 percent and enthusiasts believe it can continue to deliver as it offers contemporary and traditional styles to suit every pocket. Guy Anderson, manager of the Mercantile Investment Trust, which has a stake in the company, says: ‘Consumer weakness could make life more difficult for many retailers.
“However, we are optimistic about Dunelm’s growth runway, which is driven by an improving omnichannel proposition.”
Richard Hunter of the Interactive Investor platform notes that Dunelm has been the subject of vague bidding speculation – one of the reasons why shares are up 16% this year. Shore Capital’s Eleonora Dani rates them as a hold because they trade at 16 times earnings, which is at the high end of retail and means I’ll wait for a weakness before buying.
Next, trading at 13 times earnings is on my list of stocks to consider if the price drops a bit. The collection is attractive and affordable, and a formidable website features a host of third-party brands such as The White Company.
Meanwhile, Kingfisher, whose divisions include B&Q, Screwfix and French chain Castorama, said this week it had been hit by bad weather but that “sales in core and major categories showed continued resilience.”
However, Hunter says shares are a “sell” by analyst consensus, which may reflect an assessment that while the desire to renovate remains high, the pandemic DIY fad is over.
Shares of Sainsbury’s – up 26% this year – are trading at 14 times earnings, boosted in part by improvements in profitability at Argos.
The potential of this combination is one of the reasons why analysts say it’s worth holding Sainsbury’s shares.
I will hold on to my holding in Marks & Spencer following this week’s news of an 11.2 percent increase in apparel and home sales. This formerly woeful operation is “fast becoming the flagship of M&S’s new look,” says Hunter.
Based on my love for M&S fashion and furniture, I invested 120 pence last November. Shares are now at 179.5p. Some investors may dream of a return to 743p, the peak of May 2007.
But higher energy costs are just one obstacle to such a resurgence.
The return of shoppers to high streets and malls is boosting M&S. Another beneficiary is B&M, the discounter that supplies decor trends for less.
Such is the appeal of this contemporary variety store that Simon Skinner of Orbis Investment, one of its largest shareholders, says: ‘I defy anyone to leave a B&M without buying anything for their home.
‘It offers very attractive products at very attractive prices, thanks to its efficiency.
“It is making the most of its retail space and sourcing its stock directly from Asia, rather than through intermediaries.”
He sees the stock, which is up 13 percent since January and trading at 11 times earnings, as a good long-term bet.
The discount supermarkets Aldi and Lidl have been accepted by an affluent middle class public. As a mid-sized car, I bet B&M does the same.
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