The Week Ahead: Tesco set to give some much-needed retail cheer

Click to follow
The Independent Online

Harried investors overrun by last week's flurry of bad headlines must be praying for some retail therapy as they prepare for another set of results from some big-name retailers over the next few days.

First up, we have Tesco, the supermarket giant which recently made a foray into the lucrative North American market. Sir Terry Leahy's company will report Christmas trading figures tomorrow, and Merrill Lynch is looking forward to news of some solid festive trading.

Analysts at the investment bank expect Tesco to buck the trend of retail disappointments. "Certainly the outlook appears darker, and we'd expect discretionary spend to be cut. However, Tesco remains insulated given most of its non-food offer is discount oriented, and 75 per cent of Tesco's sales are food that will experience inflation again in 2008," it said.

Merrill reckons that the company's international business is building strong profit momentum and is diverse enough to absorb individual market weakness. As worries about a consumer slowdown persist, we'll have to wait until tomorrow to see how well or how badly (remember Marks & Spencer, which Goldman Sachs had pronounced its "Christmas winner"?) the company has performed in recent months.

Today: Trading statements: Aga FoodService, Balfour Beatty, IG Group, N Brown, Premier Oil, Ted Baker.

tomorrow: Game Group will issue a trading statement with all eyes on how strong sales of consoles such as Nintendo's Wii and Sony's PlayStation 3 were over Christmas. This is a cyclical stock – new video game consoles are the key driver of growth at this retailer. And, as KBC Peel Hunt points out, the shares are already highly ratedand therefore prone to a correction.

Debenhams has a higher market share in menswear than in womenswear, and, consequently, is more exposed to the cyclical part of the clothing market, while footfall at the company's stores is weaker compared with rivals Next and Marks & Spencer. The retailer also has a problem with margins. As Merrill points out, it has "less buying power, a fully-rented estate, higher branded mix and arguably already too lean a cost structure. With both operational and financial leverage, it has less flexibility to adjust to changing market conditions".

In addition, investors are likely to lament the company's year end falling in August, which means that the full impact of a retail slowdown will be felt in the current period. This is unlike the company's rivals, for whom it is spread across two years.

Results/updates: Burberry, Debenhams, Game Group, Tesco.

Wednesday: Christmas is very important for Woolworths. The shares have been on a downward slope over the past 12 months, and may be hurt further if the market is disappointed with the company's update. In a note published last month, Deutsche Bank said it remained cautious about the company, opting to maintain its "hold" recommendation on the stock. The bank expects the company to move from a breakeven position in 2007-08 to losses of £14m in 2008-09.

Results/updates: Woolworths.

Thursday: Home Retail Group is the company behind Argos and Homebase, and is set to update the market in the wake of DSG International's profit warning and the BRC retail sales survey, which showed that December like-for-like growth in the sector was at a disappointing 0.3 per cent. Merrill Lynch, while noting the worrying backdrop, kept its pre-tax profit estimate steady at $415m (£212m) for the current year. However, analysts did cut their like-for-like assumptions for Argos, down to -1 per cent from 2 per cent, and Homebase, down to -2 per cent from 1 per cent. JP Morgan is also cautious. Investors hoping for a reprieve from bad news may be disappointed.

Results/updates: Home Retail Group, HMV.

Friday: Although there are some reports to the contrary, the Apple iPhone doesn't appear to have rung up big sales for the Carphone Warehouse. We don't know the exact number, but analysts at Execution estimate it at between 150,000 and 200,000 last year, which would be less than the company must have hoped for. Execution also reckons that the Christmas quarter was weak for handsets generally. They point to lack of "killer" handsets: the Nokia N-series, although technically sound, hasn't appealed to consumers, while Motorola had nothing new on offer. And novelty phones, from Prada and Porsche for example, don't generate volume.

Carphone was also the focus of some bid speculation recently – Best Buyand Vodafone have been mooted as prospective suitors. Such speculation tends to resurface every time the stock has been under pressure. Cazenove thinks either prospect is unlikely. Vodafone is considered a highly improbable bidder given retail is not its core business and it has relationships with a number of other retailers such as Phones4U. As for Best Buy, its interest in faster-growing emerging market economies suggests it would be less inclinedto acquire stores on the UK's high streets, which are bracing themselves for a slowdown.

Results/updates: Carphone Warehouse.