The Week Ahead: Retail giants likely to deepen market gloom

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The Independent Online

Last week kicked off the retail reporting season in earnest, and what a brutal season it is turning out to be. Debenhams, Kingfisher and Woolworths are preparing to announce over the course of this week, and a very jumpy market has its fingers crossed that at least one will provide a welcome surprise.

Next, Kesa Electricals, Home Retail and John Lewis reported falling profits last week, generally blaming the disintegrating economic conditions. The rising energy and food bills and falling house prices have left consumers with their hands firmly in their pockets.

One company that will have looked closely at Next's figures is Debenhams, which provides a second-half sales update tomorrow. However the group has other problems on top of weakening consumer demand. Its share price fell last week after rumours emerged that it had breached its banking covenants. The talk, which came after the launch of a retail promotion, prompted a flat denial from the company but the rumours refuse to die.

The share price tells a sorry tale of its own. Since the end of 2006, where it sat just above 200p, there has been a plunge to just above 30p earlier this summer. In its last update, the group managed to beat expectations with like-for-like sales, but few were betting on a similar result tomorrow.

Woolies' results are also out tomorrow, with Seymour Pierce predicting first-half losses of £62m following weak sales. It has been a busy time for the DVD to pick'n'mix retailer, with Trevor Bish-Jones agreeing to step down in June after six years, to be replaced by Steve Johnson. It has also been in the takeover limelight. Last month it turned down a deal fronted by Malcolm Walker, who founded Iceland, and backed by the investment group Baugur. Just weeks later, Ardeshir Naghshineh, Woolies' biggest shareholder with a 10.2 per cent stake, expressed his interest in bidding for the whole group.

The third retailer to report is Kingfisher, and the air of dudgeon is slightly less heavy, although analysts disagree on whether the results will be any good.

Deutsche Bank led the cheerleaders, expecting the first-half profits to be up 15 per cent on the previous year, at £197m. It added that there could be downgrades because of the weak French and UK markets, but "the new strategy of focusing on margins and costs will protect profits".

Ramona Tipnis from Oriel Securities was not so upbeat, saying the "halo bestowed on Kingfisher ... appears to have slipped" since the surprisingly solid trading update in July, and by the sale of Castorama Italy. "It is likely that the interims next week will point to a much weaker performance in the last three weeks of the first half," she added.

The analyst was worried by Home Retail's comments last week, which pointed to "a clear worsening in trading conditions since 12 July. For Homebase, seasonal product performed largely in line with the rest of the group (minus 8.3 per cent), with seasonal outperformance in the first half of its period wiped out in the second half. This will most likely have been replicated at B&Q."

Today: Investors will be looking with interest at the ailing computer game company SCI Entertainment when it puts out its full year's today. The creator of Lara Croft has had a plethora of problems, but some analysts are expecting their losses of £30m to lessen this year.

Results: Full year: Coffeeheaven International; Genus; SCI Entertainment. Half year: Metnor Group; Essentially Group; TEG Group; Energetix Group; Ideal Shopping Direct; Cello Group.

Tomorrow: There are few surprises expected from Ashmore's results after a comprehensive update in July, although the market is waiting to hear the future of the Spec Sits 1, and whether investors have voted to wind the fund up and cash in.

Results: Full year: Ashmore Group; Wilmington Group. Half year: China Food Company; Woolworths Group. Sales update: Debenhams.

Wednesday: The building and civil engineering company Kier Group reports, with the Kaupthing Singer & Friedlander analyst Kevin Cammack predicting a revenue bump of 11.7 per cent to £2.3bn. He said the construction division would be the pick, with earnings before interest and taxation up 49 per cent, with support services up 29 per cent. Naturally, its housing sector business isn't expected to look too pretty, with a forecast of a 25 per cent drop and property down 30 per cent, although no housing land writedowns have been identified.

Mr Cammack said the stock had been "massively oversold" on housing and property exposure, which is in fact no more than 15 per cent of the pre-tax profits at the group.

"Finances remain very strong with £120m plus net cash and a decent cash reinvestment strategy. The rating is now extremely attractive and if the stock can break its association with private residential there is no reason to think a substantial rally cannot be achieved," he concluded.

Results: Full year: Antisoma; Bluebay Asset Management; Kier Group; Macro 4; Mobile Streams; NXT Sounds. Half year: Intercytex Group; Kingfisher.

Friday: Results: First half: Futura.

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