UK indices move higher, Vodafone to cut 11,000 jobs, upgrades drive Boohoo rally and Greggs delivers steady performance

“The FTSE 100 continued its slow ascent, rising 0.2% to 7,795 as investors flocked to buy industrials, property, tobacco and housebuilding stocks,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 250 also did its best to press ahead, advancing 0.2% thanks to ASOS rebounding off the back of Boohoo’s results, and TUI moving higher on signs of continued demand for holidays.

“After delivering a series of impressive trading updates, Shoe Zone looked like it had run out of momentum. Profits and margins have fallen and cost pressures remain an issue. With the share price having risen six-fold since late 2020, one might attribute today’s 13% decline to a bout of profit taking.”

Vodafone

“Margherita Della Valle – more like Cruella de Vil. The recently appointed boss of Vodafone had some harsh words for her new charge as she made the stark assertion that performance had not been good enough, indicating the need for change and unveiling swingeing job cuts.

“This is just the sort of message the market wants to hear as Della Valle becomes just the latest Vodafone boss to attempt to turn around the troubled mobile operator. During a four-year tenure her predecessor Nick Read (a 20-year veteran of Vodafone) oversaw a 40% fall in its market valuation. Today the company announced a worrying drop in cash flow for 2023.

“Like Read, Della Valle has been at the company for some time and needs to demonstrate she can really be the breath of fresh air the company needs.

“With her strong words accompanied by a plan to remove 11,000 staff from its payroll in just three years, Della Valle has signalled she is not messing about. But it will take more than just streamlining the business to make it relevant for the 21st century world of telecoms.

“The company is close to concluding its merger with Three as it looks to build scale in a competitive mobile market. Della Valle says she wants to focus on customers, simplicity and growth. It is the latter which may well determine if she is perceived as a success by shareholders.”

Boohoo

“It’s like the tables have turned, with previous winners now slipping back and laggards making a comeback. Previously a fallen angel, Boohoo certainly fits the bill after its share price jumped 15%. While it saw a decline in profits and margins, there was a sense that some analysts had been too pessimistic with their forecasts. Today’s figures have prompted some chunky earnings upgrades, which have acted as key drivers for the share price.

“A slump to an annual pre-tax loss shows how exposed it has been to rising costs coming out of the pandemic. However, the company has made real progress on its cash flow and with getting its borrowings down. Guidance for the 2024 financial year was also better than had been anticipated.

“Boohoo seems to be getting its house in order with a reduction in inventory and investments into automation and logistics. But the big unknown is how long it will take to revive growth in the business.

“Investors have fallen out of love with online retailers as growth has disappointed – so until that problem is sorted, it’s hard to say if Boohoo’s share price rally today is the start of something new or just a short-term, but potentially unsustainable bounce.

“For the markets the question will be, can the signs of improvement in Boohoo’s performance really take hold as it adjusts to new realities or are there more serious structural problems for the business?

“After all, the age group it targets tends to be more aware and engaged with environmental issues and this could impact the demand for Boohoo’s disposable fashion. Previous issues in the company’s supply chain do not help on this score either.”

Greggs

“While it will forever be associated with the sausage roll, Greggs continues to see menu innovation and the punters are loving it. The company seems to be onto a winner with a broader range of hot food such as chicken goujons, wedges and pizza helping to draw in customers for longer hours in the day, including evening times which is a key component of why it set a goal a year ago to double sales within five years.

“As with any business of this scale, there is a big focus on efficiency and not putting up with underperforming components. Despite ongoing expansion, 26 shops were closed in the first 19 weeks of 2023, following 39 closures in 2022. Shop closures would normally be cause for alarm, however many large retailers in recent years have taken the view it is better to focus on the best stores than simply go for a scattergun, land-grab approach.

“At the same time as rightsizing the estate, Greggs has been busy strengthening its logistics capability to support a greater number of stores in time.

“Inflation remains sticky which presents a problem to the business, yet consumer spending seems to be holding up where price points aren’t too high. Greggs benefits from having affordable products which explains why it comes across as calm and confident in its latest trading update rather than cautious.”

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