Increased Short Interest in the Retail Sector

King of the high street Sir Philip Green was at the World Retail Congress in Barcelona this week, and he told the FT he was a worried man. Asked about BHS' £51.4m profit loss in 2006 the Arcadia boss told the paper "we're going to have another one" (profit loss).

Enough about Sir Philip and onto the short interest. Obviously we are not able to provide this for BHS or any of the stores under Arcadia, but we can tell you about other stocks such as Sainsburys (JSAIY.PK) and DSG (DSGIF.PK), the second and third most shorted stocks in the sector (first is HMV Group). You can see from this eye-popping graph of DSG's short interest that a near perfect inverse correlation was made in January this year (please click to enlarge). With the slight rise in the share price since mid-March comes short covering, although this has only decreased by about 1% since earlier this week and the company now has 24% of its Market Cap on Loan (%MCOL). Utilisation, which has also decreased slightly, is just under 60% so it is now increasingly hard (and expensive) to borrow the owner of PC World and Currys. It would be logical to say that in tough times the last thing people are going to treat themselves to is a new computer. For those investors who do believe that the price rise is here to stay, there are 10 Days to Cover if you want to buy back shares.

Sainsburys is a stranger animal, as the %MCOL has gone up and down since mid-March. Two days ago Bloomberg said that its debt risk was rising amid "more signs of a global slump." At the moment the %MCOL is on the rise at 25% today, up from 17% in early April. Surprisingly, Utilisation is at 10%, and with 90% of the supply still there for the taking it is incredibly easy to borrow. Perhaps investors believe good news is in store for the supermarket chain (excuse the pun).

Over in the US, Electronics retailer Circuit City's (CC) fourth-quarter US same-store sales plunged 11.3% as customer traffic dropped even more, suggesting that it is ceding significant market share to rival Best Buy (BBY) (Lex Column). CC's %MCOL is at 17% today, up from 15% earlier this week (please see graph). The %MCOL has ebbed around these two figures since January with 9 Days to Cover. BB, on the other hand, has seen its %MCOL drop off from 11% in February to 8.5% today. There are 14 Days to Cover.

Back in Spain, you will find a Zara store on every high street, a place where the shopper can get immitation designer gear at a snitch - perfect for any shopaholic who is feeling the pinch. Zara is owned by Inditex Group, the brainchild of Spanish tycoon Amancio Ortega. Inditex's %MCOL is not high at 4%, down from 4.7% in late March. The share price has also risen from 33EUR to 37EUR in the same time frame. Although the clothing retailer reported its slowest profit growth in four years on March 31st, it is still growing nonetheless, and analysts have said it will resist any downturn in consumer spending (Bloomberg).

Comments

[Marol:]

How can we find out about % short interest?

And how can we find out how long to cover?

Finally, what about CALM?? Huge short interest, and the stock's going down . . .

2008 Apr 13 11:10 PM