FTSE makes sorry start to October, Wetherspoons posts record loss and AO knocked for six by sales disappointment

“At times it has felt like UK stocks have been performing a high wire act this week as they continued to make progress despite myriad worries facing investors,” says AJ Bell Investment Director Russ Mould.

“On Friday they fell off the wire as the FTSE 100 started October down more than 1%. This followed a weak session on Wall Street overnight and new factory data from Asia which only added to concern that economic growth is slowing.

“In the UK there has been an alarming drop in business confidence in the space of a month with the optimism engendered by the vaccine roll-out feeling like a distant memory amid a fuel, supply chain and cost of living crisis.

“Markets must hope that the current shortage of everything from energy and skilled staff to shipping containers and raw materials eases before stagflation becomes too entrenched and/or central banks are forced into drastic action to tackle rising prices.”

JD Wetherspoon

“How much sympathy Wetherspoons will get for its complaints about the backdrop for the pubs industry is open to question as it serves up a set of results which look so unappetising most investors would probably want to send them back to the kitchen.

“Undoubtedly ‘Spoons has gone through a period of unprecedented disruption, which helps explain its record annual loss, but so have many of its independent peers and smaller chains which don’t have the same financial heft and scale to ride out the crisis.

“A factor which has made life more difficult for Wetherspoons is its focus on metropolitan centres where usual levels of footfall are still to return.

“Country pubs with lots of outdoor space have definitely fared better and this was very much in evidence in recent updates from Fuller, Smith & Turner and Marston’s which own both rural and city and town-based establishments.

“There is limited mention from Wetherspoons of supply chain and staffing problems in its results, beyond some difficulties in attracting people in ‘staycation’ hotspots. This is somewhat surprising and it may become more of an issue for the business moving forward.

“Sales were down materially on pre-Covid levels in August and September but there are signs of that negative trend easing and ultimately Wetherspoons may benefit from a stronger market position coming out of the pandemic as other operators are forced out of the market.”

AO

“It’s astonishing how fortunes can change in the matter of a year. AO was struggling, then hit the ground running with considerable success, and now it is back to darker times again.

“Online operators were the envy of the retail world as the pandemic took hold, many already having a proven platform capable of meeting extra demand.

“Now being an online operator means having to contend with shortages of drivers to get the goods to the customer, as AO has found out.

“Physical retailers are still affected, as supply chain issues can still mean delays getting items to their stores. Yet on a bigger scale, the current crisis has shown that online retail is more complicated than you might have thought. It’s a job in itself to run warehouses and logistics operations as well as making products and marketing them.

“AO’s UK revenue growth has fallen short of analyst expectations. Its German operations have fared even worse, with the company fighting for space in a highly competitive online market. Having cracked the UK, winning overseas is a crucial part of AO’s strategy and it cannot afford to have any setbacks on this front.

“Selling fridges, TV and washing machines online is a low margin business and success is down to achieving high sales volumes. With cost pressures intensifying and sales volumes disappointing, AO faces a big squeeze on profits.”

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