Business week preview: Retail sector to take centre stage
The retail sector takes centre stage this week, with Morrisons and Argos owner Home Retail Group releasing figures, while online player Ocado gives its first update as a listed company.
The owner of Argos and Homebase chains Home Retail Group will reveal whether consumer sentiment is waning in its first update since the government's deficit-busting budget was announced.
The group, which has 747 Argos stores and 347 Homebase stores, reported a bigger-than-expected slump in sales in the 13 weeks to May 29, due to weak demand for video games and televisions.
The firm will be hoping for a bounce back from a dismal first quarter, which saw like-for-like sales down at Argos and Homebase, 8.1% and 1.4% respectively.
The Thursday update is likely to reveal the impact on sales of the World Cup in June and July - although it did not appear to make a difference to sales in late May.
Numis analyst Andrew Wade said: "We expect the second quarter to have seen an improvement in the Argos run-rate with around 5% of the first quarter decline a result of weakness in video games and TVs, both of which should have seen some improvement through the second quarter.
"Homebase, however, is likely to have seen a slowing trend, mirroring the tougher trading at B&Q and Wickes."
Last month, official figures from the Office for National Statistics suggested the high street had avoided a World Cup hangover in July as retail sales volumes jumped 1.1% - but the month was flat for department stores and household goods sales.
Home Retail previously said it was hopeful it will maintain profits on last year, which came in at £230 million, in the year ending February.
Housebuilder Barratt Developments should move back into the black on Wednesday in annual results but all eyes in the City will be on the firm's view of prospects for the property market.
Expected pre-tax profits of £38.2 million for the year to June 30 - against a £144 million reverse in 2009 - will be welcome but nerves are growing amid concerns that the temporary recovery in house prices is running out of steam.
The profits - albeit a fraction of the £451 million made by the group in 2007 - have been driven as much by cost-cutting and a change in the building mix towards houses, as improvements in the underlying market.
Meanwhile constraints on mortgage lending as well as looming spending cuts are likely to mean conditions remain "challenging", the firm said in July.
Barratt's forward sales were up 27% to £591.7 million as of June 30, and it completed 11,377 homes over the year.
It expects completions to grow by up to 10% this year, but is concentrating on price rather than volumes, reflected by a further shift towards houses to account for nearly two-thirds of volumes.
Chief executive Mark Clare - who led the firm's ill-timed purchase of Wilson Bowden in 2007 at the peak of the market - should at least have better news to report on the firm's finances.
Debt stood at £375 million as of June 30 - down from £1.27 billion a year earlier.
JD Wetherspoon is expected to show a "resilient performance" in its full year results on Friday after a World Cup boost and longer opening hours offset the impact of tax and duty increases.
The pub chain saw mixed sales growth in the year to July 25, with revenues dropping in the first half of the year, before picking up again in the early summer.
The Watford-based group, which has more than 780 pubs in the UK, recently reported an increase in sales from pubs open more than a year by 1% in the 11 weeks to July 11. This compared with the 0.8% drop seen in early May, when Wetherspoon said it felt slightly more cautious about the outlook for the next financial year.
Higher interest charges and taxation and employment pressures hit the company earlier in the year, but after it extended its morning opening hours to 7am from 9am sales bounced back.
This climb was strengthened by warm summer weather and the World Cup impact, as total sales increased by 5.8% in the final quarter of the firm's financial year.
JD Wetherspoon consequently generated sufficient cash to enable it to open 47 new pubs in the financial year.
The pub chain is expected to turn in pre-tax profits for the financial year ending July 25 of £72 million, compared to £52 million last year on revenues of £996 million, compared to £955 million last year.
Analysts at brokers Panmure Gordon said: "The group appears slightly more positive on its prospects for 2011 and is confident of a resilient performance despite the taxation and employment pressures in the economy as well as higher interest rates following the group's refinancing."
The UK's fourth biggest supermarket, Morrisons, is expected to sketch out new avenues for growth when it reports interims on Thursday, including a potential long-awaited move into online grocery.
Bradford-based Morrisons - which has seen the fastest growth among the 'big four' this year - is set to post a 14% rise in underlying pre-tax profits to £409 million in the first half, but the attention will be on new chief executive Dalton Philips' plans for the business.
Analysts will be awaiting his strategic assessment of the grocer now he has his feet under the table and hints on a new direction following the departure of former boss Marc Bolland to Marks & Spencer.
Seymour Pierce analyst Kate Calvert said: "We expect the tone to be evolutionary rather than revolutionary as Morrison is already performing fine."
But following the group's successful integration of Safeway, she added: "The issue for the shares is... that Morrison is felt to have more limited long term growth opportunities relative to its peers and has not yet pursued the same growth drivers others have such as non-food, on-line, multiple formats, financials and international."
The profits growth comes against a backdrop of slowing food inflation across the industry, which is now beginning to ease.
In May, the grocer posted a modest 0.8% increase in like-for-like sales for the 13 weeks to May 2, although it continued to outpace the market.
Industry figures from Kantar Worldpanel showed Morrisons and Sainsbury's emerging as World Cup winners in July, both adding 0.2 percentage points to their share of the grocery market in the 12 weeks to August 8 against a year earlier.
Chocolate chain Thorntons reports annual figures on Wednesday after a difficult year for the retail group.
The firm issued a profits warning in May and said its chief executive Mike Davies would retire in favour of a successor with "specific retail expertise".
Its woes were compounded by the hot early summer weather, which made the traditionally quieter period even tougher on the firm.
Thorntons, which has 377 stores across the UK, revealed in July this caused sales declines to deepen, down 6% in the 10 weeks to June 26, worse than the 4.6% drop seen in the previous quarter.
The retailer said it was cutting 35 staff from its head office in Alfreton, Derbyshire, to cut costs as it looks to combat tougher trading.
Analysts are expecting the weak sales performance to have left underlying annual pre-tax profits down to £6.2 million from £6.3 million a year earlier.
Numis Securities flagged up concerns that Thorntons is suffering a general loss of market share to supermarkets, which they said may hit profits further going forward.
However, there were some bright spots in Thorntons trading over the past year, with its Thorntons Direct website boosted by recovering sales of corporate customers in the second half of the year.
Franchise sales have also recovered after the impact of the Birthdays greeting card chain administration a year earlier, up 29% in the fourth quarter.
Online retailer Ocado's first trading update as a listed company comes amid yet more fears over its controversial stock market valuation.
The group, which has a delivery partnership with Waitrose, has seen shares driven down since July's flotation. It was forced to slash the offer price to 180p after early hopes for between 200p and 275p as investors baulked at the initial £1.2 billion value put on the firm.
Shares slumped further on the first day of trading and the stock has languished around 20% lower since then, falling as low as 139p at one stage.
Morgan Stanley retail analyst Geoff Ruddell forecast more pain to come in a recent hard-hitting note.
He slapped an 80p price target on the internet grocer, valuing it at less than half its IPO price, and warned its share of the online market is set to decline.
Ocado is facing stiff competition in the online space - Morrisons is expected to outline its plans to launch online when it reports interim results, while Amazon recently moved into the grocery sector for the first time.
To add to concerns, its exclusive partner Waitrose is also working on plans to launch its own competing delivery operation within the M25 in two years.
But there is a lack of consensus on fortunes for the group among retail experts, with analysts at Goldman Sachs - one of the banks that helped Ocado with its stock market debut - forecasting that shares should climb by 40% within six months.
HSBC and UBS, which were also involved in floating Ocado, also believe shares will recover, although at a more modest pace.
Ocado's trading update on Tuesday is expected to show sales growth momentum in the third quarter, after a 29% leap in the first half.
Comments on plans to fight off increasing competition will be watched closely, as will signs on when it is likely to post its first profit - which it has yet to achieve since launch 10 years ago.
