Last week, greetings card company Clintons announced – just ahead of the crucial Christmas trading period – that it will be closing shops and looking to slash rents as parts of its survival efforts. Similar woes have been hitting its retail peers, and especially high street shops, for a number of years.
As online shopping rises, could these two share prices come under pressure due to changing consumer preferences?
Trouble on the high street
Back in September Card Factory (LSE: CARD) announced that interim profits fell 14%, attributed to Brexit stockpiling and higher wages. In an update for the nine months to the end of October, the company said group revenue grew 5%, up from 3.4% growth in the same period a year ago. Year-to-date like-for-like sales were up 0.9%.
Reflecting the rise of consumers buying online, website sales were up 16.2% in the third quarter, taking year-to-date revenue growth to 21.9%, slower than 70.9% the previous year.
Operating in the mass-market and being highly dependent on key seasonal events such as Christmas, the retailer will have to sell more and more ancillary products such as wrapping paper to keep growing. There is a dividend yield of 5.8% for shareholders at a cheap P/E of around nine, but I think the trouble at Clintons goes to show just how tough a business this is to be in.
Trouble with CVAs
FTSE 100 property company Landsec (LSE: LAND) sits on the other side of the negotiating table from retailers looking to use CVAs to slash rent costs and survive. The group has ownership of 40 retail assets in the UK, including a share of the Bluewater shopping centre in Kent.
The group revealed recently that challenging retail conditions meant it had swung to a loss in its first half. In the six months to 30 September, it made a pre-tax loss of £147m from a profit of £42m in the first half of last year, with revenue up just 0.4% to £225m.
Compared to 40 or so retail-related assets, it has about 67 properties that fall into the leisure, residential and workspace categories. An example of these types of properties include Brighton Marina and the Dominion Theatre in London.
Given its exposure to retail, I’m surprised the shares have increased in the past 12 months – albeit by a modest amount. The P/E is now hovering around 15, which feels a little high compared to other sectors that are struggling. But it is similar to the ratio for competitor British Land.
To address the question I posed, about whether these share prices could fall – potentially sharply – I’d say in the case of Card Factory, it’s distinctly possible and I see the high yield and low P/E as an indicator of a lack of investor confidence in the company. For Landsec, I think the shares look expensive, but are less likely to fall sharply.
