Proactive Investors - Disruption to European retailers from ships being forced away from the Red Sea should be manageable in the near-term, according to Royal Bank of Canada analysts.
“Although we do expect to see longer transit times, cost increases should be manageable in the context of an overall favourable buying environment in Asia,” the bank said in a note.
Shipping companies have taken to diverting freighters following an increase in the number of attacks on boats passing through the Suez Canal by Houthi rebels in Yemen since October’s outbreak of war between Israel and Hamas.
RBC forecast such diversions would lead to between 10 and 14-day increases to transit times and coincide with an uptick in freight rates.
These will likely hit non-clothing retailers harder than apparel firms, according to RBC, with shipping amounting to around 6% to 7% of sales costs for the former, compared to just 3% to 4% for the latter.
“If the disruption persists we are likely to see a headwind for gross margins from the second half of 2024 and into 2025,” the bank warned, however.
Associated British Foods PLC (LON:ABF)-owned Primark and H&M are among the “big volume players” in terms of importing from Asia, RBC noted, while Inditex (BME:ITX) is less exposed.
B&Q-owner Kingfisher PLC (LON:KGF) “does not have significant exposure to Asia sourcing,” RBC said meanwhile, alongside Dunelm (LON:DNLM).
Next PLC (LON:NXT) was granted an upgraded share price target of 8,000 by RBC, which noted the retailer had accounted for an uptick in sales costs on the disruption in forecasts.
This was down on Friday’s close price of 8,466p though, after Next unveiled a strong update last week.
JD Sports Fashion PLC (LON:JD.) and Superdry PLC (LON:SDRY) faced share price target downgrades of 185p to 150p and 75p to 40p respectively meanwhile, after both already revealed worse-than-expected trading updates in recent weeks.