By Anna Peel. Originally published at ValueWalk.
- FTSE 100 opens lower after sell offs in Asia and the US.
- US Consumer confidence takes a battering with a fresh Eurozone reading out later.
- Trading set to stay tough for retailers as consumers stay cautious.
- Sales fall 2.2% at B&M European Value Retail SA (LON:BME) amid signs shoppers are tightening their belts.
- Loyal customers help Moonpig Group PLC (LON:MOON) stay resilient despite 17% fall in revenues year-on-year.
Q1 2022 hedge fund letters, conferences and more
Consumer Confidence Rattles Markets
“With signs that consumer confidence is seeping away, worries that global growth will go down the drain have returned to rattle financial markets. Indices on Wall Street sank into the red, dampening hopes that a floor to the sell-off might be in sight. The nervousness has pervaded trading in Asia, with the Nikkei in Japan, the Hang Seng in Hong Kong and the Shanghai Composite all sharply lower and the London’s FTSE 100 has opened in negative territory.
Covid restrictions may have eased for international travellers to China as infections rates slow, but one global problem is being replaced by another – fear that recessions are looming around the world. The latest consumer confidence snapshot for the US, from a Conference board survey, showed a sharp deterioration in optimism as shoppers are faced with a mountain of price rises. The focus will turn to the Eurozone later, with a fresh readings out today on consumer sentiment and the prospects for an improvement are low. In May confidence was close to levels not seen since the early days of the pandemic, and given that the missile barrage of Ukraine is intensifying and inflation is still on the offensive, consumers are set to stay cautious amid heightened uncertainty.
B&M’s Decline
With reports from the grocery sector that some shoppers are setting lower limits on their spend at the tills, and signs that any slack in budgets is being ring-fenced for experiences like holidays and social lives, general merchandise retailers in particular are likely to continue to feel the pressure on sales. This has been reflected in the decline in revenues at B&M European value retail, which fell 2.2% in the first quarter.
Although the group is well placed to capitalise on shoppers trading down from more expensive brands to fill baskets with cheaper groceries, with its Heron food ranges performing ahead of company expectations, overall sales including for homewear, DIY and garden products are declining. As shoppers tighten their belts, they have appeared to be less inclined to splash out on impulse buys as they browse the aisles and aren’t stockpiling essentials as much. However, a slight improvement noted near the end of the quarter has helped cheer investors, with the share price lifting in early trading.
Moonpig’s Revenues Take A Hit
For online card retailer Moonpig, it’s an even tougher trading environment, given the ready market of locked down consumers ordering from home has been drying up. Revenues are down 17.3% year on year, coming in at just over £304 million, which has disappointed investors even though the company has played down the impact on margins from rising prices, saying it’s seen no material impact on cost price inflation.
Although it’s hard to see how conditions can ever exceed lockdowns for an online-only company like Moonpig, the group has been peddling hard and its efforts in optimising data to target customers through personalised reminders do seem to be paying off to some extent. The rapid pandemic growth spurt may be behind it, but it’s growing its online market share and with 87% of revenue from existing customers, that loyalty will help Moonpig bring home some bacon, while it invests to try and attract new business.”
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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