(MENAFN - ProactiveInvestors - UK) After a bumpy year for the retail sector, the outlook for 2012 looks no more clear as uncertainty persists around consumer spending power and the economy in general.
The sovereign debt crisis in Europe, recession fears and confusion around deficit reduction plans, not to mention increasing unemployment, have added to the sector's unease.
However, after the doom and gloom of last month, there have been recent glimmers of optimism, which suggest a different picture may be emerging, at least for now.
A "late Christmas", in which shoppers make purchases right up to the wire, may yet breathe new life into the sector.
One recent survey found that in the first two weeks of December, more retailers experienced year-on-year sales growth than those that suffered a fall.
Online also continues to shine. The CBI said in the last month of the year almost all internet-based companies in the distributive trades survey reported a rise in sales.
While brokers said the recent improvement is welcome, few have changed a gloomy prognosis for 2012 overall for retail.
In a Christmas trading preview, investment giant Goldman Sachs said that despite the pick-up in sales it remained cautious on margins.
"We believe that 2011 has been an exceptionally bad year for the consumer, with real disposable income down 1.6 per cent year-on year, close to a post-war record for the UK, it said.
Goldman added it believes that Christmas trading statements are likely to show deterioration of performance year-on-year, though the run rate of sales for many companies may benefit from more promotions and weaker comparatives.
Seymour Pierce analyst Kate Calvert concurred: "Christmas might not be quite as bad as expected despite a significant number of profit warnings, subdued sales following unusually warm autumn weather and heavier discounting.
"Post-Christmas, however, we do not expect to see a 2008-style rebound in sales. We thus remain cautious on the general retailers and maintain that it is still too early to buy the sector."
November's performance may give more clues as despite recent and well-publicised discount campaigns by high street stores, sales still fell 0.4 per cent and 0.7 per cent on the month excluding fuel sales, according to the Office for National Statistics (ONS).
The exception was again the internet. Espirito Santo Investment bank highlighted data from accountant BDO on the health of the UK high street.
"Its data for the week to 11 December shows that online sales picked up to more than 25.5 per cent year-on-year".
"In contrast, fashion sales on the high street have slumped, falling from more than 15 per cent in the prior week to just over 0.3 per cent in the week to 11 December. Again this raises concerns about stock levels at the fashion retailers, and the increasing likelihood of increased markdowns," analyst Richard Cathcart said.
Matthew McEachran, at Singer Capital Markets, suggested the cold weather had been too little and too late for clothes retailers.
"Although we still look at 2012 with a slightly positive mindset relative to other segments, the problems the clothing industry faces in this quarter are far from over and share prices could yet drop further."
"Even with numbers five per cent below consensus we cannot be sure that our assumptions adequately model the pressures on sales and margins after dire autumn trading and with consumers now locked into discount mode at peak which will impact margins."
The analyst said that for investors, who share his concerns, he recommended switching out of clothing shares over the coming weeks.
Analyst Freddie George at broker Seymour Pierce also remains bearish on the general retail sector, though he did earmark Laura Ashley (LON:ALY), with a current price of 20 pence, as one company investors should look out for and targets a price of 24 pence for the stock.
He says the firm has a great opportunity to further grow internet sales and expand the business in developing markets, such as China and Russia.
"It also pays a dividend, yielding over 10 per cent, which we believe is sustainable given the company's business model, strong cash flow and the strength of its balance sheet," he pointed out.
Meanwhile, Wall Street bank Citi has looked at food retail EPS estimates for 2012 and suggested even these stocks will have a tough time in spite of healthy looking growth targets.
