Should you invest in these 5 high street retail stocks?

Highlights

• According to a report by the CoStar Group, a provider of commercial property information, only 79 of the leading shops, including BHS and Debenhams, were open compared to 467 in 2016.
• Over 60% of the buildings meant for the retail shops are currently unoccupied, and 237 are yet to be taken up by alternate businesses.

The UK’s high street retailers have witnessed the closure of 83% of the total department stores since the fall of the British Home Stores (BHS) in 2016. The trend underlines the change in the high street retail sector as the COVID-19 accelerated changes in the shopping habits of customers. According to a report by the CoStar Group, a provider of commercial property information, only 79 of the leading shops, including BHS and Debenhams, were open compared to 467 in 2016. It also reported that over 60% of the buildings meant for these retail shops are currently unoccupied, and 237 are yet to be taken up by alternate businesses. 

However, lifting of lockdown restrictions and reopening of the economy is expected to drive customers back to high street retail outlets. Nevertheless, several retailers have been quick to speed up their transition to the digital sales platform in response to the pandemic. With rising vaccination rates and improving customer confidence, footfall in these outlets is also growing.

 

Here we look at 5 high street retail stocks and evaluate their potential as investment option for investors.

 

Marks & Spencer Group Plc (LON: MKS)

Marks and Spencer Group is a UK-based retailer that specialises in selling home and food products and clothing. The company’s food revenue for the 19-week period ended 14 August 2021 increased by 10.8% year-on-year and 9.6% on 2019-20 levels; and clothing & home revenue increased year-on-year 92.2% and was down by just 2.6% on 2019/20 levels, respectively. 

The company expects adjusted pre-tax profit for 2021 to be more than the upper end of previous guidance of £300 million-£350 million, driven by strong food and clothing sales in stores post lockdown. 

Marks & Spencer shares traded at GBX 178.35, down slightly by 0.31% at 9.36 AM on 27 August 2021. The shares gave a return of 56.45% in the last one year to shareholders, and the market cap stood at £3,503.04 million.

Boohoo Group Plc (LON: BOO)

Boohoo is the UK’s leading online fashion retailer. In July 2021, it partnered with Alshaya for accelerating the integration and scaling of the brand Debenhams in the Middle East region.

For the quarter ended 30 May 2021, the group’s total revenue reached £486.1 million, up by 32% year-on-year compared to £367.8 million for the same period in the previous year. The company recorded net cash of £199.1 million as of 30 May 2021 (28 February 2021: £276.0 million).

Boohoo shares traded at GBX 280.40, up slightly by 0.54% at 9.26 AM on 27 August 2021, and the market cap stood at £3,526.84 million.

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JD Sports Fashion Plc (LON: JD.)

JD Sports Fashion is a company engaged in the retail and distribution of branded outdoor, fashion and sportswear. Post the addition of US-based DTLR Villa LLC, and Central Europe based Marketing Investment Group S.A. to its portfolio, the company operates through a network of approximately 3,300 stores in 29 countries. In June 2021, JD Sports sold Sports Unlimited Retail BV to Iberian Sports Retail Group SL.

JD Sports revenues for the financial year 2021 was £6,167.3 million were up from £6,110.8 million in the previous year. The company’s pre-tax profit for FY 2021 was £324.0 million compared to £348.5 million in FY 2020.

JD Sports Fashion shares traded at GBX 1,012.00, down slightly by 0.05% at 10.39 AM on 27 August 2021. The shares gave a return of 40.99% in the last one year to shareholders, and the market cap stood at £10,445.22 million.

WH Smith Plc (LON: SMWH)

WH Smith is a retailer that operates a network of high street, airport, railway station, port, motorway service station shops. On 25 August 2021, WH Smith, in collaboration with Quotall, a company specialising in insurtech ecosystem, delivered a new insurance service for retail customers in the UK.

In a completely recovered travel environment, WH Smith expects stores to deliver annual sales of £60 million and incur capex and working capital investment of £15 million for the year ending 31 August 2022.

 

WH Smith shares traded at GBX 1,648.50, down by 1.55% at 10.56 AM on 27 August 2021. The shares gave a return of 46.14% in the last one year to shareholders, and the market cap stood at £2,192.07 million.

Dixons Carphone Plc (LON: DC.)

Dixons Carphone is an electrical and telecommunications retail company. The company’s revenues for the year 2020-2021 stood at £10,344 million, up by 2% from £10,170 million in 2019-2020 and adjusted profit before tax rose by 34% to £156 million from the previous year’s £116 million. Dixon Carphone’s free cash flow stood at £438 million, an increase of 302% year-on-year. The company’s omnichannel strategy supported its growth during the pandemic.

Dixon Carphone shares traded at GBX 140.10, up slightly by 0.43% at 9.11 AM on 27 August 2021. The shares gave a return of 50.32% in the last one year to shareholders, and the market cap stood at £1,627.21 million.

Conclusion:

The pandemic caused several high street retail brands to shut shops and conduct complete or partial operations through digital channels. However, reopening of the economy is likely to expand customer footfall in stores, thus driving investor interest in retail stocks over the next few months.