Retail can be a volatile industry at the best of times. The current coronavirus pandemic has further deepened the woes of some retailers already struggling with online competition. Government lockdown measures include the closure of all non-essential shops.
Coupled with the tougher social measures, many retailers are already and will continue to be affected. The market crash has seen millions wiped off share prices and the downturn may continue in light of the Prime Minister’s new announcement.
Greeting cards
Card Factory (LSE:CARD) announced late Monday morning it would be closing all its shops. The greeting card company also said it dropped its final dividend for the year ended 31 January.
Decrease in footfall and shop closures were to be expected. With tougher measures in place I am worried about the short to medium term prospects of Card Factory as an investment. Although they do have an online presence, they may struggle due to online competitors such as Moon Pig.
The announcement on Monday morning caused a dip of 5% in the share price. Prior to this the share price had seen a 60% decrease in the previous month. Profit levels have been dipping every for the past four years. Although the dividend was cancelled, its dividend per share dipped by 40% between 2018 and 2019. Its net debt at the end of February stood at £137m, however, the firm does have access to a £200m revolving credit facility.
These are concerning numbers for a company that relies heavily on footfall and shoppers on the high street.
Books & stationery
WH Smith (LSE:SMWH) is a household name and retail stalwart. It has over 600 stores on high streets, and another 800+ travel stores at airports, train stations, hospitals, motorway services, and workplaces. With such a heavy physical presence, the retailer will be suffering in light of closures.
CEO Carl Cowling wrote to his workforce last week to allay fears. Reports have emerged it is positioning itself as an “essential retailer” to the government to avoid closures. That said, with social distancing measures in place, I do feel the retail giant will experience a tough time ahead.
Again, an online presence is part of its makeup. But with competitors, such as Amazon, who offer similar services and are more online-savvy, WH Smith’s sales will be affected in my opinion.
The share price since the market crash began has seen an astonishing 60% decline. A trading update released in January for the 20-week period to 18 January showed total revenue up 7%, although, tellingly, high street revenue was down 5%. This further solidifies my point about the high street struggle and dwindling footfall.
Although profit levels have been consistent over the past five years and dividend per share increasing for the same period year on year, this pandemic will affect WH Smith’s figures for the next full-year results.
Next steps
At this point I would exercise extreme caution towards retail stocks. Of course some investors will see cheap prices as buying opportunities, but these businesses primarily rely on footfall and physical stores. WH Smith may be viewed as a long-term opportunity, but brace yourself for a lot of short-term pain.
I always recommend keeping up to date with changes in a target company’s situation and with events. For now, I would not recommend these particular stocks despite being able to buy cheap.
