Don’t read the last rites yet

You don’t need to look far to find reasons to be cheerless about retailers’ prospects, as highlighted by their dismal share prices over the past year. Store stocks are enveloped in as deep a gloom as the Addams family’s mansion.

But retail shares are not zombie investments and it’s too early to call in the undertakers. Updates from groups as diverse as Dixons and Laura Ashley, Debenhams and SuperGroup all show that, as in the past, retailers can win through, despite changing conditions.

Investments are typically about future, not past performance. Hence the constant fretting about what the impact of the Government’s autumn cost-cutting and resulting job losses will be, or the effect of VAT and rising business costs.

Broker Oriel challenged the ghoulish view of prospects with a sector note entitled ‘Fighting Prejudice’, arguing that the facts are at odds with such downbeat sentiment.

Oriel goes so far as to maintain that “Armageddon is already priced in”, and it doesn’t get much worse than that. Overly pessimistic expectations about the economy and lack of willingness to credit retail management teams with the capacity to trade through torrid conditions have put stores out of favour with investors - that means there are opportunities to be had.

A similar stance is taken by Matrix, which believes the retail glass is half full and there is a gap between perception of retail and reality. It has an overweight stance on the sector.

The reporting season is well under way and the fact is that, although there have been nasty moments such as HMV and Home Retail’s updates, there have been no real surprises.

There is a good case to be made that there will be surprises to come - but maybe more likely to surprise on the upside than have been expected so far.

As always, and as analysts would agree, it is all about smart stock-picking.