Investors broadly positive towards retailers ahead of crucial trading updates

Welcome to my first piece of 2011 where I feel duty bound to cover the retail industry to see if any investors have formed any strong views ahead of the crucial trading updates. In the UK, sales tax (VAT) increases to 20% from 17.5% today which has led some to imagine that retailers will use this moment to make further price rises to cover growing costs caused by, amongst other factors, the rising oil price. We take an international perspective and look at Bed Bath and Beyond (NASDAQ: BBBY), Target (NYSE: TGT), Borders (NYSE: BGP), Barnes and Noble (NYSE: BKS), HMV (LON:HMV), Carphone Warehouse (LON: CPW), L’Occitane (HKG:0973), Home Retail Group (LON:HOME) Kesa Electricals and Dixons Retail plc (LON: DXNS).

Looking at our “sentiment” dashboard for global retailers we see positive investor feelings across the main regions especially in Asia where not a single name features as negative. This is not just due to a lack of trading over the holiday period. It is interesting to see institutional investors buying into the L’Occitane story (HKG: 0973). This seller of cosmetics grew out of a single shop in Provence. It now has a $4bn market cap and is an extremely tempting source of gifts when you see them at airports and elsewhere. Long only investors have almost doubled their shareholding over the past 6 months to 8% of shares while short selling is low.

Book retail continues to be a survival of the fittest scenario. Barnes and Noble (BKS) reported “record setting” sales in the 9 weeks prior to Christmas partly due to the success of their e-books via their Nook device. Short interest in BKS continues to fall, but remains high at 14% of total shares outstanding on loan. Long only funds who lend have not expressed a view since they reduced their shares significantly in September. It seems that many investors remain unconfident about the company’s future. However, it is doing well in comparison to their rival, Borders (NYSE: BGP). They are delaying payments to major publishers according to the New York Times today (whose article I read, fittingly, on Amazon’s Kindle). Short selling had been reducing prior to the price collapse on December 31st when it doubled to 6% of total shares.

The UK’s HMV own the Waterstone’s book shop chain and short selling remains huge at 22% and there was no short covering to take profits when the price fell in December.

Bed Bath and Beyond (NASDAQ: BBBY) tops our list of “positive sentiment” and this has coincided with them reporting very good third quarter earnings. Short selling continues to fall (it is now 0.5%) while long only funds who lend are gradually buying more shares. Target (NYSE: TGT) is also in the cross hairs for investors, with low short selling (0.52% of total shares) while institutional investors have increased their holdings by just under 6% over the past week to 26% of the company.

Carphone Warehouse (LON: CPW) is popular with investors according to our European Retail screen. It is very interesting to see that funds who lend have added to their CPW holdings to the tune of an 83% increase. This has, in whole or in part, driven the shares to a 52 week high and they are up 5% more already this year.
Is there a theme running between those firms seeing such positive sentiment? There does not seem to be. That said, firms relying on old fashioned mail order who now compete with the likes of Amazon.com do show some short selling.

Home Retail Group (LON:HOME) owns mail order veteran Argos and has 12% of its shares on loan. Kesa Electricals has many large stores selling white goods like washing machines and they have short selling at 3% of all shares while short interest in Dixons Retail plc (LON: DXNS) has risen steadily over recent months to 8% of total shares outstanding on loan.