2 September 2010

Seymour Pierce

09/02/2007

Richard ‘Ratty’ Ratner, vice chairman of small- to mid-cap investment bank Seymour Pierce, but still rattling out the research, pitches two sofa-sellers in a Christmas trading head-to-head.

First into the ring is cheap and cheerful Land of Leather (LoL), whose orders for the 13 weeks to the end of January were up 12.8 per cent overall due to 13 new openings in the first half, but down 4.6 per cent on a like-for-like basis. Two more stores are due to open in the second period and Ratner observes that ‘the near 200-point increase in gross margin should ensure that first-half profits are well ahead of last year, although the like-for-like slowdown for delivery during the second half will mean that full-year numbers are likely to be in line with market expectations.’

This slowdown is ‘not restricted’ to LoL and ‘could herald the fact that the consumer is “spent up”, along with a more difficult time for “big ticket” on the way’. The broker’s recently downgraded recommendation of ‘hold’ remains, especially ‘given the relatively low p/e ratio’.

Ratner suspects that retail rival ScS Upholstery will not come flying out from the other corner to take advantage of LoL’s slowing. At the time of its last results in November the group expected underlying sales to pick up, but the evidence from LoL is that ‘the pick-up may not have happened and that like-for-like sales may still be significantly in negative territory’.

So, despite ScS’ extensive roll-out programme, it is ‘unlikely’ to be able to produce the level of margin increase of its competitor. Profit estimates remain the same ‘but, given the p/e ratio being higher than LoL, we change our recommendation from hold to underperform’.

Companies: Land of Leather , SCS Upholstery

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