It was the week of the dead cat bounce, with some of the sector’s scrawniest-valued moggies being the biggest beneficiaries.

Topps Tiles, bedevilled by covenant concerns, led the pack as its valuation surged almost a third. Sports Direct, which slumped the previous week on the back of disappointing results, was back in favour. Unloved DSGi made a big advance – despite losing its finance director to Kingfisher, also one of the big risers. And the capitalisation of Debenhams, despite the weighty debt burden that has unnerved analysts, climbed by a quarter.

Overall, general retailers put the All Share index in the shade but, sadly, the enthusiasm is likely to be short-lived. Brokers expect the rest of the year to be bloody and believe next year will be no better. The double-digit share price falls of all the top risers are a truer indication of sentiment.

Shocking news from Vodafone on Tuesday added fuel to the flames of recessionary fears. The company became the first telecoms player to warn that harsh economic conditions in the UK and on the continent were affecting sales.

Until then, Vodafone and its peers had been regarded as insulated from the effects of the credit crunch. Evidence to the contrary helped push the FTSE 100 back into bear market territory and consumer stocks were among the worst affected. Carphone Warehouse, Marks & Spencer and Next all fell on the bad news.

Value specialists are riding the downturn well, although much premium product has also proven resilient. Those in the mid-market or with few distinguishing characteristics are feeling the squeeze hardest and that is likely to continue.

The mid-market is, of course, exactly where many retailers sit. Last week’s share price relief is likely to be temporary.

Buy-backs lose appeal

As debt concerns weigh heavily on investor sentiment, share buy-backs look likely to fall further out of fashion.

Blue Oar analyst Ian Macdougall noted this week that, of Marks & Spencer’s year-end net debt of£3.1 billion,£500 million was a result of share buy-backs. Had Next not bought back shares over the past two years, it would have net cash rather than a£740 million debt.

Buy-backs were once hugely popular, but things have changed. As Macdougall notes, the rationale collapses if no one believes the earnings outlook in the first place.

George MacDonald is deputy editor of Retail Week

Topics