Frasers Group in the firing line after profit warning
Frasers Group, the owner of Sports Direct, is not the only retailer set to suffer now that new Covid restrictions have been introduced. Matthew Partridge reports
![Sports Direct shop](https://cdn.mos.cms.futurecdn.net/rj97uspXhtmS3o7VE5x6u6-415-80.jpg)
Frasers Group’s shares plunged by 10% this week after it “sounded the alarm” on profits, says Laura Onita in The Daily Telegraph. The news followed store closures in London and swathes of the South East due to the new Tier 4 rules .
The retailer, which owns chains including Sports Direct, House of Fraser, Evans Cycles and Game Digital, said its previous guidance from earlier this month of a 20%-30% rise in annual profits was “unlikely to be achieved”. The new rules mean that many shops will be forced to close to customers yet again and there is a “high likelihood” of “further rolling lockdowns” over the next few months.
The new restrictions closing all non-essential retailers will hit Frasers particularly hard since it is “heavily reliant” on “bricks and mortar” high-street sales, unlike online-only rivals, says Jim Armitage in the Evening Standard. The disruption may also have a knock-on effect on its plans to buy parts of the Debenhams and Arcadia businesses now up for sale. While it could make the brands “even cheaper”, Frasers’s problems mean that its “financial firepower” could be reduced. Already it looks as though Arcadia will be sold off “piecemeal”, with Australia’s City Chic agreeing to buy Evans clothing.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Clothing sales plunge
Of course, Frasers Group isn’t the only retailer to be affected by the change in plans, says the Financial Times. The share prices of Next, Ted Baker and Superdry have all been hit. The new restrictions are particularly painful since they come during the peak trading period in the run-up to Christmas.
The November lockdown has already caused a lot of damage, with clothing sales falling by nearly a fifth compared with the previous month, says Phillip Inman in The Guardian. Sales of household goods rose by 1.6% and many online operators reported booming sales, with internet-shopping now accounting for 31.4% of all spending, “an increase of almost 75% since November 2019”. But this was partly due to “heavy discounting”. Overall retail sales fell by 3.8% month-on-month.
Even if retailers can keep selling during Tier 4, they are increasingly relying on consumer credit, says Graham Ruddick in The Times. While credit allows shoppers to spread the cost of items in a “manageable way”, there has been “dramatic growth” of such schemes, either directly or through financial technology companies such as Klarna. More than 70% of Next’s sales in the first six months of the year were made on credit. With the FCA, the City regulator, due to report on unsecured credit next year, companies could be forced to change the way such schemes are run.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Regulator moves to protect access to cash amid branch closures and disappearing ATMs
News The Financial Conduct Authority has told banks to start assessing if local communities have adequate cash access from mid-September
By Marc Shoffman Published
-
VAT hike on private school fees could come earlier than previously expected
The government could start charging VAT on private school fees as soon as January 2025, according to the latest reports. What does it mean for parents?
By Katie Williams Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published