Retail stocks as discretionary spending falls: Kalkine Media explores

Highlights:

• Inflation reached double digits in July and is expected to soar further in the coming months.
• As a result, British households are cutting down on non-essential spending to be able to pay the soaring energy and food bills.

Inflation hit 10.1% in July, the highest in 40 years. For some time now, inflation has been a new record. The Bank of England (BoE) has projected it will rise further in the coming months, and Citibank has warned that it may reach 18% in early 2023.

Due to the high prices, millions of Brits are forced to slash their expenses. The salaries have failed to grow in line with inflation, meaning that people are left with less money as they pay significantly more for things than last year. Sales of non-essential items are coming down as people exercise caution while spending their hard-earned money.

Image source: © Andreus | Megapixl.com

According to the British Retail Consortium, the value of sales at its members, which mostly consist of large chains and supermarkets, saw a 1% rise in August compared to the same period last year. However, this was lower than July's 2.3% increase, indicating that households cut back on purchases as energy bills and food prices soared.

The decline in sales growth also hints that Brits are already cautious about the BoE's warning that the UK economy may slip into recession by the end of this year. 

Meanwhile, separate data from Barclaycard revealed that spending on consumer payment cards saw a 4.7% growth last month, the smallest since March 2021. Clothing retailers witnessed a 2% fall against August 2021, while the sales at department stores fell 4.3%.

Kalkine Media® explores some retail stocks and their performance in the current scenario.

Next Plc (LON: NXT)

Next is a major retailer in the UK and a constituent of the blue-chip FTSE 100 index. It retails in clothing, footwear, accessories, and home improvement products. With a market cap of £7,802.34 million, the stock has given investors a negative return of -19.48% in the past 52 weeks. Shares of the company rallied 5.57% and were trading at GBX 6,372.00 as of 9:00 am GMT+1 on Tuesday.

DFS Furniture Plc (LON: DFS)

With a market cap of GBX 308.43 million, shares of the furniture retailer were down 1.11% as of 9:03 am GMT+1 on 6 September. The FTSE All-Share constituent has given a negative return of -53.18% over the past 52 weeks with a EPS of 0.35.

Mulberry Group Plc (LON: MUL)

The British fashion firm Mulberry Group’s stock price has slipped over 5% in the past 12 months, while the year-to-date return currently stood at -22.73%. It has a positive EPS of 0.08, and the stock price stood at GBX 245.00 as of 9:10 am GMT+1 on 6 September. 

Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.