Is there still life on the UK high street – MoneyWeek

Howhavethingsbeenturnedaround?

It’salldowntoreinvention。

ThestoreismorelikeTopshopforgrown-upsthantheMSofold,saysClareCoulsoninTheDailyTelegraph。

ThemanbehindtheturnaroundisCEOStuartRose,whohasmanagedtocreatehugedemandfor“keypieces”whilekeepingtrackofitsbestsellers,sothatitcanprovidefast-changingstock–astrategyatwhichyoungerstoresarealreadyadept。

Theyhavebeenbringingthestoresintothe21stcenturytoo。

Lastyear,20brancheswererefurbishedand60otherswillbeoverhauledthisyear。

ButMSisn’ttheonlycomebackstory。

JustwhenyouthoughttheUKhighstreetwasintatters,someofthegreatBritishnamesareprovingthedoubterswrong,saysHarryWallopinTheDailyTelegraph。

AustinReedandLauraAshley,bothofwhichhavebeenstrugglingforanumberofyears,recentlyreleased“surprisinglystrong”tradingstatementsandBurberryhasturnedthecornerinitshomemarketafteratleastthreeyearsoffallingsalesintheUK。

Theseretailersalltargetolder,moreaffluentcustomerswithlowerlevelsofdebtwhoarebetteroffthanthoseyoungercustomersbeginningto“feelthepinch”。

Anothertraitthesecompaniesshare,accordingtoSandraHallidayattrend-watchersWGSN,isthatthey’vebeenworkingontheirstoresandsupplychain,andhavebeensteadilyrebuildingtheirbalancesheets。

OnemoreretailerthathasbeenpayingdownitsdebtisdepartmentchainstoreDebenhams,whichhasannouncedthatitistoreturntotheLondonStockExchangenextmonthina£2bnlisting,theUK’slargestinalmostfiveyears。

ThemanagementteamatDebenhamshasworkeditsmagic,saysLexintheFinancialTimes。

Inthetwoyearssinceitwastakenprivate,theUKretailerhasimproveditssupplychainmanagement,increaseditsmarketshareandgrownitsmargins,allthewhilegenerating“enoughcashtopaydowndebt”andintheprocesstransformingitselfintoa“growthstory”。

Itplanstobuildonthesuccessofits‘DesignersatDebenhams’offering,capitalisingonthe“lust”fordesignerlabelsatlowprices,whilerollingoutitsnew‘DesirebyDebenhams’storeformat。

Anotherhigh-streetnamestandsout:TimWaterstone,whofoundedtheWaterstone’sbookschainafterbeingsackedbyWHSmith25yearsago,haslauncheda£280mbidtobuybackthebusinessfromitsowner,HMV,saysFionaWalshinTheGuardian。

ThedealisconditionalonHMVabandoningitsplanstotakeoverrivalbookchainOttakar’s,whichcouldleavethewayclearforWHSmithtolaunchitsownofferforOttakar’s。

WaterstonesoldhisbusinesstoWHSmithin1989,butboughtitbackin1998whenhewasheadofHMVMediaGroup。

HeresignedaschairmanofHMVayearbeforeitfloatedin2002,buthasbeen“unhappy”withtheperformanceofthebusiness,believingitspursuitofa“middle-market,discount-led”strategytobethewrongone。

Thispotentialupheavalinthebooksellermarketisfurtherevidencethatthekeytoprosperingonthehighstreetistomovewiththetimes。

Thebeststocksinthesector

ForanyonewhoisconsideringbuyingwhenDebenhams(DEB,469p)listson4May,LexintheFTsoundsanoteofcaution。

Theoffering“doesnotlookcheap”。

Atthetopendoftheindicatedpricerange,thebusinessisvaluedat14。

9times2006earnings,notmuchofadiscounttoMarksSpencer(MKS,596p)at15。

6times(afterstrippingoutproperty,sinceDebenhamsnolongerhasany)。

Itspost-offeringdebtof3。

4timesearningsbeforeinterest,tax,depreciationandamortisationalsorequiresa“leapoffaith”,sincefreecashflowwillbeusedforgrowthandtopaydividends。

InarecentMorganStanleyreport,analystClaireKentsaysthatthereis“moretogo”forMarksSpencer’sshares。

Aftertheretailer’sbetter-than-expectedfourthquarterresults,theyhaveupgradedtheirfull-yearestimatesandpricetargetandhavea“fairvalue”forthestockof£6。

80。

Kentcitesstronggeneralmerchandisesalesinthefourth-quarternumbersat+8。

2%(versustheirforecastof+0。

5%),withfood+5。

6%(+5。

3%)。

Itmaintainsits‘overweight’rating。

HalfordsGroup(HFD,317p)isoneofGoldmanSachs’stopretailpicks–theyrateit‘outperform’。

Thewidevaluationgaptothesectoris“unjustified”,theysay,givenlackofcompetitionfromsupermarketsandexposuretodefensiveandfast-growingproducts。

Ontheirestimates,thestocktradesonareasonableprice/earningsratioof11timesandyieldsahealthy4。

3%。

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