The market continued to punish retailer Mr Price on Thursday, sending the previously highly rated company's share price 11% lower to R165, after losing 15.96% on Wednesday.
Mr Price blamed a disappointing sales update on unseasonally warm weather for a 3.6% drop in comparable sales at its apparel division in the 18 weeks between April 3 and August 6.
Mr Price has lost 17.7% so far in 2016, after retreating an annual 14.9% in 2015. Its price-earnings ratio has rerated to 15.8, from 22 at the beginning of August.
Analysts do not foresee a recovery soon. "We do not believe operating conditions would improve in the short-term, and would continue to weigh on Mr Price’s sales," said Momentum SP Reid retail analyst Alex Sprules.
His views echoed that of Mr Price’s management on Wednesday, saying that with the soft winter and the weak trading environment over the past 18 weeks, it was unlikely earnings for the half-year to September would exceed those of the previous year.
Analysts expressed shock at the sharp deterioration in Mr Price’s fortunes. The group reported annual headline earnings per share had risen 17% for the 53 weeks ended-April.
But Mr Price has been here before. In September 2015, the share price dropped 27% from its R280 high on a similar disappointing trading update before recovering.
Although technical analysis shows the general retail index to be "exceptionally oversold", and Mr Price having dropped to six-month lows, it appears the market is not taking any chances this time.
"We have highlighted our cautious approach towards retailers, and that tough market conditions have not yet caught up with them," Sprules said.
Although one analyst said a short-term trading rebound in the index was on the cards, retail sales data released in August could make it increasingly unlikely. Annual retail sales growth decelerated to 1.7% in June, lower than the market’s forecast of 3.8%, from 4.5% in May.
Nedbank economist Johannes Khosa said growth in retail sales was set to remain volatile, but weak in the coming months. "Consumers’ ability to spend would be contained by weak confidence, the stagnant job market, softer income growth and high debt-service costs," he said.
Retail stocks are, therefore, bound to retract further as fundamentals kick in.
Fashion retailers Truworths and the Foschini group have all rerated to worse levels than that of Mr Price. They were weaker on Thursday, but more subdued at losses of between 1% and 2%.
Truworths is down 18% so far in 2016, but is trading on a price-earnings ratio of 11.
It was at 16 in April, and rerated despite sales growth of 46% to end-June. In SA, sales were up 11.3%. The Foschini group reported headline earnings per share had risen 17.6% in the year to end-March as group turnover rose 31.2%.
It is up 6% in 2016 at a price-earnings ratio of 12.
Woolworths remains the wild card in the sector. In contrast with the rout at Mr Price, it traded higher for most of the day on Thursday, turning weaker later. It has lost 20% so far in 2016.
With its large exposure to clothing, Woolworths seemingly dodged Mr Price’s headwinds, reporting a much-improved performance in the year to the end of June.
Clothing sales were 11.7% higher in SA, with comparable sales gaining 8%.
Woolworths seemingly saw the signs of stalling winter sales earlier than at Mr Price. Mr Price’s management lamented that fact, saying in the company’s sales update that in hindsight, winter goods should have been marked down earlier than usual.
