The Week Ahead: City fears the worst as retailers report on sluggish Christmas
Monday 05 January 2004
Investors have been braced for profits warnings from the retail sector for the best part of a month, and few believe that last week's disaster at WH Smith will be the last from the high street. This week the Christmas trading update season really gets into its stride, with reports due from the owners of the Next and Bay Trading clothing chains, Hill Samuel, the jewellers, and Iceland, the frozen food group.
Next is the biggest of the lot, and the FTSE 100 fashion group models its latest sales figures on Tuesday. Hopes are high and the decision of many high street stores to open on Boxing Day brought shoppers into town at the expense of the superstores, so the post-Christmas sale is likely to have gone well. Better still, Next appears to have been one of the few chains not forced into discounting in the run-up to Christmas, when shoppers were fewer than in previous years.
Analysts expect Next will be able to boast like-for-like sales growth of up to 2 per cent over the festive period, but any comments on margins will be most helpful in working out what that means for profits.
Also on Tuesday, Alexon - which owns a portfolio of chains, including Dolcis shoes, Bay Trading and Envy - is expected to reveal its latest sales figures. Richard Ratner, an analyst at Seymour Pierce, thinks Next at least will be telling the City to raise its profits forecasts, but others may follow WH Smith's lead in warning on profits. He said: "It has been an iffy Christmas for the sector, the worst that I have seen for a long time. Things did pick up in the last few days before Christmas but it was not the mini-bonanza that we had been expecting."
Thursday looks like being the busiest day of the week. Slated to produce sales figures is House of Fraser, the department store group, which is once again on high bid alert following rumours last week. Potential suitors, including the likes of Tom Hunter and the Icelandic retailer Baugur, will want to see how trading has been over the Christmas period, and the consensus is for flat or slightly lower like-for-like sales.
On the same day, Big Food Group, owner of the Booker cash-and-carry group and Iceland, has a trading update due. Food sales seem to have been one of the sector's highlights over the festive period and Iceland is slowly but surely pulling itself from the malaise of the past few years. The group is sprucing up its stores and enjoying improved sales at the new formats as a result although, the last we heard, it seemed that unconverted stores were still in gentle decline.
Also on Thursday, Signet reports its latest sales figures. Hopes have been raised by a bumper Christmas for UK rival Goldsmiths, but Signet has more than 70 per cent of its business in the US, so the decline of the dollar will be a drag on the reported numbers. At the time of its last update, sales for the year to date had reached £289.4m, up 7 per cent at constant currency rates, but less than 4 per cent ahead of the comparable period in sterling terms.
Outside the retail sector, there are trading updates this week from Travis Perkins, the building materials group, on Wednesday; Kidde, the fire safety equipment group, on Thursday; and Interserve, the building and maintenance group, on Friday.
It is also the week of the Bank of England's Monetary Policy Committee meeting, which makes its monthly pronouncement on interest rates on Thursday. Most economists expect there will be no change to the base rate of 3.75 per cent.
There will be last-minute data on the services sector and the trade deficit, but expectations are that a continued strengthening by the PMI survey of service sector optimism will be counter-balanced by flat retail sales, as measured by the CBI, suggesting a relative cooling off by the consumer. In December, the MPC voted eight-to-one to hold rates after the increase in November, saying they needed more time to examine its effect on the debt-burdened consumer.
The one results statement pencilled in so far for this week is that of Abbey on Thursday. The little housebuilder got its knickers in a twist over Abbey National's decision to rebrand its high street banks as plain Abbey, but this is unlikely to have had any effect on the Abbey plc results. The builder - which does a third of its business in Ireland - boosted profits by a third in the year to last April and its interim results are expected to show continued strong growth, thanks to buoyant housing markets.
TODAY: Eurozone - HICP inflation (Dec).
TOMORROW: UK - M0 money supply (Dec); Services PMI (Dec); CBI distributive trades survey (Dec). Eurozone - Services PMI (Dec); France - GDP final revision (Q3). US - ISM non-manufacturing index (Dec); Manufacturing orders (Nov).
WEDNESDAY: Eurozone - Business confidence (Dec); Consumer confidence (Dec).
THURSDAY: UK - Bank of England Monetary Policy Committee interest rate announcement. Eurozone - Producer prices (Nov); Unemployment (Nov); ECB interest rate announcement. US - weekly jobless claims; wholesale inventories (Nov).
FRIDAY: UK - trade in goods and services (Nov). Eurozone - German trade balance (Nov), manufacturing orders (Nov). US - Non-farm payrolls (Dec); Average earnings (Dec).
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