Must read: FTSE 100, oil prices, Kingfisher, Mothercare, Dr Martens, Black Friday

Wall Street might be closed for Thanksgiving, but there's plenty to keep investors busy. Our head of investment rounds up the early action.

GLOBAL MARKETS 

On a quieter than normal day because of the Thanksgiving holiday stateside, European markets have opened tentatively higher except for the FTSE 100, which is trading softer. Vodafone Group (LSE:VOD) has sunk to the bottom of the UK index after Credit Suisse downgraded the stock to underperform. 

In its quarterly update, Britain’s energy regulator, Ofgem said the average household energy bill price cap will rise by around 21% to £4,279 in January. Bill payers will still be protected by the government’s Energy Price Guarantee until March 2024. 

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US markets closed higher with the tech-heavy Nasdaq outperforming as minutes from the Federal Reserve’s latest meeting suggested the pace of rate hike could slow this year into next.

OIL 

Oil prices are trading lower after the G7 proposed a price cap on Russian oil that is higher than current market prices, helping to ease concerns about restrictive supply in the market. Plus, China’s Covid infections hit a record high, also pushing oil prices lower amid expectations of softening demand from the world’s second-largest economy. China continues to pursue its aggressive zero tolerance to Covid approach, creating a severe headwind for its economic outlook. To offset this, there are growing expectations that its central bank could cut the reserve requirement ratio (RRR) soon.  

KINGFISHER 

Kingfisher (LSE:KGF) reported third quarter like-for-like sales up 0.2% to £3.3 billion up. Sales are significantly ahead of pre-pandemic levels up 15.3% with a ‘good start’ to the fourth quarter with like-for-like sales up 2.8% in the three weeks to 19 November. However B&Q sales in the UK lagged behind, falling 2.7% with a drop in outdoor revenues post-Covid with tough year-on-year comparables. The group expects full-year 2022-23 adjusted pre-tax profit in the range of around £730 million - £760 million, slightly below its previously guided range for £730 million - £770 million, sending shares lower in today’s trade. 

The DIY group fared extremely well during the pandemic with profits of £949 million last year. Although year-on-year this looks set to slow, Kingfisher is enjoying a tailwind from increased sales of energy efficiency products to offset the surge in energy bills facing consumers this year. The company also said Screwfix is gaining market share and it is stepping up its roll-out in France with its first two store openings. Kingfisher continues to focus on competitive pricing to offset pressures on the consumer from the cost-of-living crisis with a focus on its cheaper own brand products. Poland continues to perform well with sales up 10.5% and a strong market share. 

Shares in Kingfisher have been caught up in the broader market sell-off this year down over 25% year-to-date but have rebounded by more than 20% over the last month thanks to the more positive broader market sentiment.

MOTHERCARE 

Mothercare (LSE:MTC) has appointed Daniel Le Vesconte as group CEO from the start of 2023. He boasts a range of retail experience in leadership roles, most recently working for Abercrombie & Fitch. Meanwhile, the retailer reported first-half adjusted EBITDA or £3.2 million falling from £5.6 million a year ago with turnover falling to £38.5 million versus £41.7 million year-on-year. 

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Mothercare has had a very tough few years, with its UK business falling into administration in November of 2019 before agreeing a franchise deal to sell its products in Boots in August 2020. It has also been dealing with the termination of its operations in Russia this year on the back of the war in Ukraine. While its UK franchise with Boots enjoyed 10% sales growth year-on-year, its performance in the Middle East has been more challenging. This year’s macroeconomic headwinds from cost inflation and a softening consumer are also adding to its woes. Shares are down over 60% year-to-date and down 87% over a five-year period. However the stock is trading sharply higher today, amid optimism that the new CEO can help kickstart a more positive period for the retailer.

DR MARTENS 

Dr. Martens Ordinary Shares (LSE:DOCS) reported an 8% drop in first-half profit after tax to £44.7 million on revenues up 13% to £418.6 million. It maintained its revenue guidance for high-teens growth for the full-year but lowered its core earnings margin forecast, sending shares down double digits percentage wise today. The stock is on track for its worst daily drop on record.

The iconic British boots brand seemed to defy the doom and gloom over the summer by reporting an increase in profits and raising its revenue guidance. However the macroeconomic pressures from inflation and the consumer slowdown appear to be catching up with it now after record sales last year. Shares are trading around 35% below their flotation price of 370 pence a share from its London listing last year. 

This is a brand that falls in and out of favour among fickle fashionistas. Recently its boots were a ‘must have’ but that preference appears to be fading. Consumer discretionary brands more broadly are facing the problem of slowing sales as the recessionary environment takes its toll on retail. No doubt Dr Martens will be hoping for a boost to sales around Christmas, but January onwards could prove more challenging.” 

From an investment perspective, the company still seems to be in favour among analysts with 7 buy recommendations, 1 hold and zero sells on the stock with an average price target up 61% from the current share price. Although there could be some downgrades after today’s update.

BLACK FRIDAY 

Black Friday may struggle to keep businesses in the black, given that it is expected to be considerably less exuberant than previous years. 

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Pressures from the cost-of-living crisis and rising mortgage rates are squeezing household budgets, leaving less left over for retail spending this festive season. More than half of consumers are expected to cut back on Christmas shopping this year, with less extravagant spending on food, drinks and gifts. Many families are opting for Secret Santa with a strict budget limit to minimise the amount of pounds each person needs to spend. Individuals and families across Britain are facing a perfect storm this year when it comes to making ends meet with the soaring cost of food, energy, and rent. 

While the final quarter is still likely to see its annual seasonal boost in retail spending around the holidays, this increase is expected to be more tempered than usual as the looming recession in the UK bites. Retail sales have already been slowing, resulting in a number of businesses falling into administration including Made.com Group (LSE:MADE) and Joules Group (LSE:JOUL) in the UK. 

Meanwhile businesses will be desperately fighting it out for the slimmed down collective pot of potential consumer spending. It is likely that there will be more aggressive discounts than normal to entice shoppers to spend their precious pounds. However, businesses have also been facing a big increase in costs from energy to wages to materials. This troublesome combination of increased costs and higher discounts will put pressure on margins, making it increasingly tough for retailers to remain profitable. They may also struggle with a hangover of too much inventory if sales fall short of expectations, potentially resulting in even more discounts after Christmas into the new year and even tighter margins. 

In an attempt to find bargains, consumers may look to carry out as much of their festive shopping as possible around the Black Friday/Cyber Monday period. That might result in increased shopping in November as shoppers bring forward their December spending to the earlier cheaper month.