British retailers battered by vote for Brexit

Shares in British retailers were hammered on Friday as the country's decision to quit the European Union hit sterling and raised the prospect of another recession.

Some of Britain's best-known retailers, including Marks & Spencer, Next, Debenhams and Sports Direct, endured record intra-day falls as the cost of Britain's retreat from Europe was priced in.

Supermarkets Tesco, Sainsbury's and Morrisons suffered double-digit percentage falls.

Analysts highlighted the double whammy of likely weakened UK consumer sentiment and the sourcing pressures of a devaluing pound after sterling collapsed to its lowest level versus the U.S. dollar since 1985.

"It is highly likely there will be a slowdown in (economic) growth, even if only short term, which does impact consumer spending power," said analysts at Verdict, the retail researcher. Credit Suisse now expects Britain's GDP to fall 1 percent in 2017.

Analysts said spending on big ticket items could be deferred and the housing market would likely slow as people are put off moving.

With the majority of British retailers' non-domestic purchasing done in U.S. dollars, a weaker pound has a major impact on their buying costs.

Jefferies' analysts pointed out that a 1 percent cut in like-for-like sales has a 1 to 10 percent impact on UK non-food companies' earnings estimates, while any 10 percent hit to the sterling/dollar exchange rate has, in most cases, a 10 to 20 percent impact on earnings.

Shares in Sports Direct plunged up to 43 percent before recovering to be down 15 percent by 1457 GMT.

It highlighted the material changes to the pound/dollar exchange rate and the lack of transparency of those rates in the short to medium term.

"These factors are likely to impact purchases for which the company is currently not hedged for the full-year 2017 period and beyond," it cautioned.

Shares in M&S plunged up to 30 percent, but recovered to be down 10 percent.

"We will be monitoring and assessing the impact on our business as the situation evolves," said a spokeswoman.

Though a weak pound makes British goods cheaper abroad, helping British retailers with international operations, the Brexit vote will also raise questions about unfettered access to the EU market.

Speaking on Thursday, before the Brexit vote result, Tesco CEO Dave Lewis said a run on sterling would have an impact on the price of sourcing some categories.

"It's something that's going to affect the industry and not Tesco disproportionately," he said.

Some analysts said Tesco, Britain's biggest retailer, and Morrisons could actually benefit from a rise in food inflation if they are able to pass on the higher cost of goods to consumers.

The vote for Brexit could also have an immediate impact on merger and acquisition activity in the sector.

South Africa's Steinhoff said on Friday British single price retailer Poundland had rejected its takeover proposal. Given the impact of the referendum vote Steinhoff said it was now "considering its position."