The Frasers Group (LSE: FRAS) share price has been extremely topsy-turvy in December trade. The retail giant surged earlier this month on the back of some seriously-strong trading numbers. But it’s done an about-turn in Monday business and wiped out all these gains in a stroke.
Frasers Group is, in fact, down more than 10% in start-of-week business. And it’s within a whisker of plunging to six-week lows below 425p per share. It’s fallen on the back of a fresh trading release which underlines the pressures facing non-essential retail operators like this.
Frasers Group pulls guidance
So what did the firm-formerly-known-as-Sports Direct say today? Well it said the sudden announcement of fresh lockdown measures by the government on Saturday night has forced it to withdraw its guidance for the fiscal year ending April 2021.
The FTSE 250 business commented that “given this is a peak trading period, and combined with the high likelihood of further rolling lockdowns nationwide over the following months at least… [the board] can no longer commit to Frasers Group achieving its publicised guidance.”
This is quite a turnaround for Frasers Group investors to swallow. Just last week, the retail colossus upgraded its earnings estimates for the financial year. It predicted then that adjusted EBITDA would jump between 20% and 30% year-on-year. The shuttering of almost all of its stores since the weekend has consigned these bold forecasts to the bonfire.
Tiers and fears
Under Tier 4 rules — restrictions which have been slapped on London and huge swathes of the South-East — retailers selling non-essential goods have had to shut up shop. Frasers Group sells its wares online but its e-commerce operations won’t offset the huge damage that mass store closures will cause.
The Pfizer and BioNTech vaccine is being rolled out quickly across the UK. More than 130,000 Britons received their jabs in the first week alone. However, the fast spread of a super-coronavirus variant has prompted new restrictions and cast fresh concerns over Frasers Group’s profit-making abilities.
Forecasts in danger
Current Tier 4 lockdowns are set to remain in force until December 30. But it’s not unreasonable to suggest they could remain in place for months. Health secretary Matt Hancock told the BBC yesterday that “we don’t know how long these measures are going to be in place. It may be for some time until we can get the vaccine going.”
It’s possible then, that Frasers Group could suffer a severe hangover that extends well into the financial year ending April 2022 too.
Broker forecasts for Frasers Group are set for another sharp revision in the space of just a few weeks. Right now, the retail play is predicted to report a 24% earnings rise in fiscal 2021. This leaves it trading on a forward price-to-earnings (P/E) ratio of 8 times.
