Equities Update: Dr Martens, Pets at Home, AutoTrader, Costco…

Dr Martens announces major cost cuts needed

Adam Vettese, analyst at investment platform eToro, says: “This has been another update that makes grim reading for Dr Martens, with revenues declining and US sales once again a weak spot. The firm has announced a raft of cost cutting measures and it seems they do need to pull themselves up by the bootstraps to get out of this financial quagmire. The new CFO is targeting savings of £20-25 million, news of which is being well received by the market this morning. This morning’s bid however is a drop in the ocean, given that the shares have pretty much been on the decline since the IPO in 2021.

“Consumers have been under pressure in this higher inflation environment and with their punchy ticket price, a pair of Docs is probably one of the first luxuries to make way. The numbers would back this up.”

Inflation drags on accessories spending, denting Pets at Home profits

Adam Vettese, analyst at investment platform eToro, says: “It has been a tough week for Pets at Home given the CMA probe into veterinary services and now a slump in profit has been revealed. Inflation pressures have led to pet owners holding back on toys and accessories for their furry friends, profitable items which really affect Pets at Home’s bottom line. The firm has said they have a plan to resolve this situation, partly caused by now rectified distribution issues, which shareholders will want to see progress on by the next update.

“The dividend has been held steady and £25m buybacks have been announced for next year, which may be of some comfort to investors who have seen the share price get a 30% haircut since July last year. The hope will be that as inflationary pressures begin to ease, pets will get a bigger part of the household discretionary spend once again.”

Auto Trader shifting through the gears after another record year

Mark Crouch, analyst at investment platform eToro, says: “It’s hard not to be impressed with Auto Trader’s rise since its 2015 IPO. The UK’s largest online automotive marketplace has been shifting through the gears, generating increasing returns for its shareholders while showing no sign of slowing down. Despite the onset of inflation in 2021, causing revenues to stall, the company has since stepped on the gas and revenues per user have rebounded to record highs in each of the following three years. It’s little surprise then that this morning’s full year earnings report is more of the same. Revenues, profits and cash flow have all moved higher.

“Auto Trader has made itself indispensable to buyers and sellers in recent years. With at least 80% of buyers using Auto Trader, this has resulted in franchise retailers, manufacturers and private sellers turning to Auto Trader as a matter of course.

“With no serious challenger to Auto Trader’s dominance, it has paved the way for the company to expand operations into other areas of the automotive market. This includes acquisitions of AutoConvert, a finance, insurance and compliance platform in 2020, and more recently, Autorama – the car leasing company. Both have offered access to lucrative growth and revenue streams and although Autorama is still running in the red, the company will be confident they can get the wheels in line and turn a profit. Given Auto Trader’s outstanding margins from its main business, they have plenty of room to manoeuvre in order to get it right.”

Mixed bag of retail data ahead of Costco results

 
Mark Crouch, analyst at investment platform eToro, says: “We’ve seen a clutch of indications for the retail sector today and it’s clear that the market remains extremely reactive to the incoming data. US department store retailer Kohl’s plunged 20% in value in pre-market trading after reporting a surprise loss of 24 cents per share for its first quarter, with poor-performing clearance sales acting as a significant drag, while Footlocker jumped a double-digit percentage after surprising to the upside with its sales numbers.

“On a broader note, the latest retail inventories report from the US census bureau showed a 0.3% increase for April, excluding autos, and this build in stocks is suggestive of overall sluggish consumer activity.

“Against this backdrop, big-box retailer Costco reports earnings for its third-quarter after the market close on Wall Street. Costco’s position as a value-oriented retailer stands it in good stead for the current inflationary climate, though, and same-store sales are expected to increase nearly 6%.

“Costco’s shares have risen more than a fifth in value this year, significantly outpacing the benchmark S&P 500 index and investors will be keeping a close eye on its e-commerce performance, which is expected to lead sales growth with a double-digit increase from the previous year. Another area of focus will be whether the company decides to hike its membership fee to keep in step with broad price rises elsewhere.”