Shorting the Christmas Retailers - Bets now Closed 13/1/2016

Saturday, Dec 26 2015 by
18

'Shorting the Christmas Retailers'  

What a bold headline to make during the season of goodwill to all everyone.   I am sure that I will get some thumbs down for just the miserable subject title alone!   However my timing is probably perfect.  Since it is boxing day I doubt many people will actually bother to read this post.   So I may be safe from the howls of the bullish retailer investors who at this time are probably thinking of buying the Christmas/New Year sales; rather than reading this.  

But despite being the season of goodwill we must stick to our unemotional plans when investing no matter what the time of the year is.  So today I read a very interesting article in The Times Newspaper Business Section.   It too had a happy headline called 'Short-sellers betting retailers will disappoint'   It seemed quite disappointing to read considering that this is meant to be the best part of the cyclical year for many retailers.    So what on earth is the Times doing giving us all this doom and gloom.

Well this shouldn't have come as a big surprise.  Even before The Times article I was aware of the profit warning from Game Digital (LON:GMD) (how could anyone miss it), and also Bonmarche Holdings (LON:BON) .   In my opinion I wasn't surprised at £GMD as I believe in the digital age of practically buying instant download games, then stores are kinda well old fashioned.   Bonmarche Holdings (LON:BON) I am not so sure.  I felt the market was over reacted, and the business model is still sound.   

But as mentioned in the article, Black Friday, warmer Christmas, slowdown in China the hedge funds have taken notice and in most cases increasing shorting opportunities in all the retailers.

So I wonder how I could jump on the bandwagon and try to make money short selling some of the retailers.   But the question that I asked myself was 'Which Ones?'   I took the time to build lists and filters checking retailers for High forecasted PE's, low forecasted earnings growth and anything else that would for me anyway knock the price down should the speculated profit warnings become fact.

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Associated British Foods plc is an international food, ingredients and retail company. The Company's segments include grocery, sugar, agriculture, ingredients and retail. Its geographical segments include the United Kingdom, Europe and Africa, the Americas and Asia Pacific. The grocery segment manufactures grocery products, including hot beverages, sugar and sweeteners, vegetable oils, bread and baked goods, cereals, ethnic foods, herbs and spices, and meat products, which are sold to retail, wholesale and foodservice businesses. The sugar segment is engaged in growing and processing of sugar beet and sugar cane for sale to industrial users. The agriculture segment manufactures animal feeds and the provision of other products and services for the agriculture sector. The ingredients segment manufactures bakers yeast, bakery ingredients and enzymes, among others. The retail segment buys and merchandises value clothing and accessories through the Primark and Penneys retail chains. more »

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2419p
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Mkt Cap (£m)
19,325
P/E (fwd)
16.4
Yield (fwd)
2.1

Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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23.25p
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-1.5%
Mkt Cap (£m)
80.7
P/E (fwd)
26.6
Yield (fwd)
n/a

NEXT plc is a United Kingdom-based retailer offering clothing, footwear, accessories and home products. The Company's segments include NEXT Retail, a chain of over 500 stores in the United Kingdom and Eire; NEXT Directory, an online and catalogue shopping business with over four million active customers and international Websites serving approximately 70 countries; NEXT International Retail, with approximately 200 mainly franchised stores; NEXT Sourcing, which designs and sources NEXT branded products; Lipsy, which designs and sells Lipsy branded younger women's fashion products, and Property Management, which holds properties and property leases which are sub-let to other segments and external parties. Lipsy also sells directly through its own stores and Website, to wholesale customers and to franchise partners. The Company's franchise partners operate approximately 180 stores in over 30 countries. more »

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5546p
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7,546
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12.4
Yield (fwd)
3.0



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58 Posts on this Thread show/hide all

gus 1065 8th Jan '16 39 of 58
1

Morning Ian,

I suspect you could have shorted almost any sector in the past few days and made a good return. An ebbing tide lowers all boats and all that. Congratulations on a good call.

All the best,

Gus.

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GrindertraderUK 8th Jan '16 40 of 58

Morning guys, that certainly helped past few days. But I reckon the retail stocks selected would still fall albeit less returns ?

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GrindertraderUK 8th Jan '16 41 of 58
1

Profit warning from Sports Direct  downgrades for Boohoo.Com (LON:BOO) my retailers bet is worth continuing 'for a wee while yet'

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Mark Carter 8th Jan '16 42 of 58
2

In reply to post #117391

The thing that puts me off about Boohoo.Com (LON:BOO) is that it's such a "can't miss" idea at the moment that it's something of a "crowded trade".

I can see why everyone like it, though.

I don't hold.

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yamaha865 8th Jan '16 43 of 58

With Poundland blaming reduced high street footfall and the Sports Direct profit warning, seems like this could have a good read across for Associated British Foods (being low margin high turnover market segment).

Also may apply for JD Sports and WH Smith

Disclosure- I am short ABF, JD and SMWH. GLA!

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ls2g08 8th Jan '16 44 of 58

Well done Ian, as I suspected you called it dead on. Wish I had the minerals to follow you on this! I'm still a bit weary of shorting, unlimited losses and limited gains still makes my stomach churn a little.
Would be interested to see if shorting these particular names outperformed the broader index and the consumer cyclical sector.

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gus 1065 8th Jan '16 45 of 58
1

Given the generally cra**y time most long positions have had over the past few days, I'm pleasantly surprised to find that my portfolio of retailers actually managed to end up by about 1.5% this week. A combination of decent results from Majestic Wine (LON:MJW), some renewed interest in French Connection (LON:FCCN) and the J Sainsbury (LON:SBRY) approach to Home Retail (LON:HOME) more than offset losses in Bonmarche Holdings (LON:BON), Boohoo.Com (LON:BOO), Halfords (LON:HFD), Laura Ashley Holdings (LON:ALY) and Marks and Spencer (LON:MKS). I guess if you can't be good be lucky.

I suspect I may not be so cheery by the end of next week.

Gus.

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Webpax 8th Jan '16 46 of 58

Ian, great article, great trading! Do you have target prices for when you will close the spreadbets? Or are you employing trailing stops or some other means to determine your exit?

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GrindertraderUK 8th Jan '16 47 of 58

In reply to post #117493

Thanks Webpax. To be honest I have no real exit plans which is poor of me as I usually stick to a trading strategy. But the results have gone my way in a manner far beyond my expectations. I know China market worries have impacted global indices, but i believe i would have done well anyway.

I was thinking of keeping this running for around 3 months, but I am not greedy and my gut feeling now is to close all bets soon and be happy with the results.

best wishes Ian

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GrindertraderUK 10th Jan '16 48 of 58
6

Introduction

As many of you are aware I have done quite well  Shorting the Christmas Retailers .  This was a portfolio of retailer stocks that was mentioned in The Times last December which warned that the retailers were in for poor Christmas sales.  I decided to setup a spread bet portfolio of these stocks with the view to shorting them.

The strategy has worked extremely well with just Home Retail (LON:HOME) having stopped me out with a loss of £952 pounds.   Here is a snap shot of the remaining retailer bets still open by close of the week Friday 8th January.

Short porty

As you can see the portfolio has done pretty well and when we discount HOME loss of £952 we are still in profit.  There has been a few factors that have brought the retailers share price down.  Some have reported disappointing sales, We have also had on of the worst January’s ever.   I believe the negative effects of China’s Shanghai main index plunging more than 10% in the past month.  This started domino knock on effect on the other major global indices.

But what now?

Many of my twitter followers are suggested that it may be time to close the bets or take some profit off the table. They expect a ‘bounce’ very soon.   I have had to ask myself in what bounce they refer to.  Is this going to be a bounce of the indices in general, or the sectors, or maybe just the each individual retailer that has suffered a drop in share price due to the excuses of the warm winter period?

Basic Portfolio Study

After a bit of pondering I have decided to look at the valuation of each stock in the portfolio still open.  I am still looking at this test as a ‘whole portfolio’ point of view.   In such a case there is no need to go into much detail, so below is the basic questions I want answered.

  1. Is Turnover forecasted to increase?
  2. Is Pre-Tax Profit forecasted to increase?
  3. Is Earnings forecasted to increase?
  4. Have they released there trading statement and is it positive?
  5. What of the yearly chart?  Temporary dip or a major trend?
  6. What if broker general consensus?

Finally I have listed the stocks in order or 1 year PE ‘Rolling’ starting from ‘cheapness’ compared to the others, and also included the Rolling PEG ratio.

56929cf965bc4porty_excel.png 

1. Debenhams (LON:DEB) - DebenhamsDeb has the ‘cheapest’ rolling PE at 8.3  and PEG at 0.7.   It’s turnover, pre-tax profit and earnings are forecasted to reasonably increase.   The broker consensus is HOLD but these figures alone would appear to make Debenhams (LON:DEB) an attractive BUY.

  • Christmas Trading Update -  No up date as yet.   Last year DEB released an update on 13 January 2015 so I would expect to receive an update soon.
  • Chart - Has beenon a downward momentum since August
  • Opinion - I would expect to keep the short open and revaluate after the IMS due soon

2. Game Digital (LON:GMD) - GMD has a cheap rolling PE at 8.9  but no PEG.   The tturnover, pre-tax profit and earnings are forecasted to decrease.   The broker consensus is HOLD.

  • Christmas Trading Update -  on 23rd December 2015 GMD released an IMS reporting disappointing sales and the outlook remained negative.
  • Chart - Has lost 50% of it’s value since November.
  • Opinion - GMD continues to be a clear short.

3. Poundland (LON:PLND) has a rolling PE at 11.4  but no PEG.   The turnover is forecasted to rise but, pre-tax profit and earnings are forecasted to decrease.   The broker consensus is BUY.

  • Christmas Trading Update -  on 7th January 2016 PLND released an IMS reporting disappointing sales and the outlook remained negative.
  • Chart - Has been in decline for most of the past 12 months
  • Opinion - PLND continues to be a short.

4. Marks and Spencer (LON:MKS) - has a rolling PE at 11.4  but a PEG of 4.4.   The turnover, pre-tax profit and earnings are forecasted to increase but only by single figure percentages.   The broker consensus is WEAK BUY.

  • Christmas Trading Update -  on 7th January 2016 PLND released an IMS which seemed fairly upbeat.  General merchandise sales were disappointing but food sales were up.
  • Chart - Has been in decline for since June 2015.
  • Opinion - The chart momentum is still down and I am not sure if it has bottomed out.   On a portfolio view MKS could still be part of the shorting strategy as long as the price momentum continues to push down.

5. Home Retail (LON:HOME) - Having been stopped out with a £952 loss on the news that J Sainsbury (LON:SBRY) had approached Home Retail (LON:HOME) with an offer in November then the price spike up by 40%.   I was stopped out at 9.4%.

  • Opinion - I shall not be seeking loss revenge on Home Retail (LON:HOME) and shall no longer be part of the portfolio.

6. Burberry (LON:BRBY) - has a respectable rolling PE at 14.9  but no PEG.   The turnover, pre-tax profit and earnings are forecasted to weaken.  The broker consensus is HOLD.

  • Christmas Trading Update -  No up date as yet.   Last year BRBY released an update on 14 January 2015 so I would expect to receive an update soon.
  • Chart - Has been in decline for since for most of the year.
  • Opinion - Despite not yet receiving the Christmas update yet, BRBY sales (especially in Asia) have been in decline.   With forecasts continue to weaken and the share price in a steady decline, this is still a clear short.

7. Next (LON:NXT) - has a rolling PE at 15.1  but a high PEG at 3.6   The turnover, pre-tax profit and earnings are forecasted to increase by around 5%.  The broker consensus is HOLD.

  • Christmas Trading Update -  on 24th December 2014 NXT released an IMS which warned that sales were at the bottom end of market expectations.  Next Directory sales were further disappointing highlighting the lower margins in a crowded home delivery market.
  • Chart - Has been in a sharp decline during December 2015 to date.   
  • Opinion - This is a difficult one to call going forward.   Many believe Next will recover from the sharp drop in price that occurred since the IMS. At a PE of 15 but with Earnings growth slowed (reason for the high PEG) , I think that NXT has topped out, however I am uncertain about the short currently open.

8. Mothercare (LON:MTC) has a slightly high rolling PE at 17.4  but no PEG   The turnover, is forecasted to be flat, while pre-tax profit and earnings are forecasted to decrease.  The broker consensus is HOLD.

  • Christmas Trading Update -  No up date as yet.   Last year MTC released an update on 14 January 2015 so I would expect to receive an update soon.
  • Chart - Has been in a decline since mis July 2015
  • Opinion - Will wait for the update to decide which action to take.  Giving the forecasts are to decrease and the broker rating as HOLD I suspect a poor trading update.   At the moment MTC will remain in the portfolio.

9. Associated British Foods (LON:ABF) - has a slightly high rolling PE at 28.6  but no PEG   The turnover & pre-tax profit are forecasted to increase slightly and earnings are forecasted to slightly decrease.  The broker consensus is strong HOLD.

  • Christmas Trading Update -  No up date as yet.   Last year ABF released an update on 15 January 2015 so I would expect to receive an update soon.
  • Chart - Has been in an upward trend however has declined since the retailers started reporting the Christmas sales.
  • Opinion - A rolling PE of 28 is very high.   Giving the worry of retailers at this present moment and that the price is in decline, I believe any trading update below expectations could hit the price by quite a lot.   I do not see much upside at the moment.   The short will stay until the next trading update where I shall review.

10. ASOS (LON:ASC) - has an eye watering  rolling PE at 49.5  but a very high PEG at 6.9  The turnover, pre-tax profit are forecasted and earnings are forecasted to increase.  The broker consensus is BUY.

  • Christmas Trading Update -  No up date as yet.   Last year ASC released an update on 13 January 2015 so I would expect to receive an update soon.
  • Chart - Has been uncertain since April 2014 before declining until October 2014 before recovering slightly.
  • Opinion - Valuation doesn’t seem to make any effect on ASC considerable rise this past few years.   Profit margins are slightly lower from previous year.  Nothing would surprise me with ASC and is a bit of a gamble call.   Lets see what the update brings before I decide what to do with the short.

Conclusion

Having had a basic look over the retailers currently being shorted, I am still of the conviction that I should continue to leave the bets open.   Most of the retailers Turnover, profits, earnings are in decline.   Brokers are averaging a HOLD and we still have some trading updates to come  in.  We have also saw retailers not in my portfolio that warned on profits i.e Sports Direct

I have had quite a few followers on twitter messaging me, suggesting that I now close the bets or take profits before the bounce happens.   I am of the view that if a bounce does occur that the impact of my shorting gains will be minimal.  I am still very much of a bearish view on the retailers.

So my immediate plans are to:

  • Keep all short bets open
  • Close some of the stop losses to break even (but never higher)
  • Add to the GameAccount Network (LON:GAME) short
  • Review the overall plan once all my shorted retailers have updated us.
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GrindertraderUK 10th Jan '16 49 of 58

In reply to post #117542

I did it again. I wrote GameAccount Network (LON:GAME) instead of Game Digital (LON:GMD) in conclusion section . sorry for the error

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herbie47 11th Jan '16 50 of 58
1

In reply to post #117551

Yes confusing some of these names, you could have picked Games Workshop (LON:GAW) as well. I get confused with companies with Red in the name.

I see Poundland is bouncing today.

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GrindertraderUK 13th Jan '16 51 of 58
4

All shorts are now closed. Having been stopped out of Debenhams (LON:DEB) and Home Retail (LON:HOME) with unexpected trading updates, then on this occasions Stop Losses worked extremely well for me. I would also like to add that small exposure and experimenting over a number of retailers allowed more time to consider the over all trade plans.

I saw decent trading statements from Ted Baker (LON:TED) and J Sainsbury (LON:SBRY) so I think the rebound is due,

Here is the final results.

5696128788050retailers.png

I will prefer to leave it to others to argue if this was all skill, luck, global market conditions, stop loss gaps, or that I should have closed out earlier (hind site) etc etc.   But not bad for a 3 - 4 weeks trading!

best wishes Ian


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lucien2k 13th Jan '16 52 of 58
2

Game Digital (LON:GMD) definitely agree this one is a clear short. They had a clear route to turn around when they were delisted a few years ago, after their acquisition of Gamestation they were left with 2 stores in many towns.

This gave them a great story for their relaunch, particularly with the new generation of games consoles.... but:
- Mobile gaming has grown at an astonishing rate (but it cuts out retailers)
- Console gamers are buying more digitally now
- Amazon continues to grow, taking their hardware and software sales
- Their high margin product (preowned games) is being squeezed by CEX, Ebay, Digital sales etc.
- The new AAA game pipeline is very thin because of reduced investment by gaming companies.
- Many game companies are cutting out retail entirely, 100% digital releases.

Market headwinds is a bit of an understatement.

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gus 1065 13th Jan '16 53 of 58

Ian,

Nice well thought through trade with a good end result. Probably all of the first four of your causes helped out but isn't that always the way. Pleased to report I'm net up on my two positions - Marks and Spencer (LON:MKS) and Home Retail (LON:HOME) - that you shorted. Hope you are right in your call for a general pick up in the sector.

Thanks for sharing your thought processes and mechanics so clearly throughout the process.

All the best,

Gus.

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GrindertraderUK 13th Jan '16 54 of 58

In reply to post #117830

Hey gus. Thanks for your thoughts too and it was na pleasure to discuss my trade plans with you. I am glad Home Retail (LON:HOME) and Marks and Spencer (LON:MKS) are also doing well for you also.

You might also be interested to find out that I am now bullish on Debenhams (LON:DEB) . I did a small report here

good luck with your investing going forward.

best wishes Ian 

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herbie47 13th Jan '16 55 of 58
1

In reply to post #117818

Ian, I think you did very well. Yes the market problems did help but it was clear that some retailers were not doing well in run up to Christmas. I few surprises like Debenhams (LON:DEB). I think you are right to close now, some are going up today like ASOS (LON:ASC). I'm tempted to top up Next (LON:NXT), will wait and see though. Only other one I have is Home Retail (LON:HOME) waiting for a higher bid to appear which is rumoured to happen soon. A few high flyers have taken a fall such as Trakm8 Holdings (LON:TRAK), so there are some buy choices now.

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GrindertraderUK 13th Jan '16 56 of 58
1

In reply to post #117851

Hi Herbie thanks for the reply too. I think it was a mix of luck and some skill. The retailers are rebounding now and I do wish you luck in the good quality stocks like Next (LON:NXT) etc .

Thanks for all your feedback during this time. It was appreciated.

best wishes Ian

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JPshares 19th Jan '16 57 of 58
2

In reply to post #117836

Sorry Ian, please ignore the thumbs down on your reply. My clumsy finger hit it instead of the thumbs up on my phone and It won't let me change it. It was definitely supposed to be a big thumbs up!!

Very well done on this short term retailer short, a great result! Thank you for sharing all of your detailed thoughts and analysis also, I found it greatly insightful and always enjoy your posts.

All the best!

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GrindertraderUK 20th Jan '16 58 of 58

Thanks JP for taking the chance to reply. I am very surprised there was no thumbs down since majority of retailer investors don't like shorters! lol

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