The week ahead: Retail results, and other best-sellers

Sunday 15 September 2002 00:00 BST
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Louise Thomas

Louise Thomas

Editor

Apart from Wall Street's daily roller-coaster, the UK stock market will be moved next week by revelations in the retail sector. The high-street boom is a big factor in the strength of the UK economy and next week it is getting a serious health check, particularly on Thursday when August's retail sales figures from the Office of National Statistics are published.

In clothes retailing, Selfridges, French Connection, Austin Reed and the European companies Hennes & Mauritz and Inditex, which owns Zara, are reporting results. The concern that the retail boom is over has put pressure on the share prices. A more short-term worry is the effect of recent climatic conditions on the sales of their new collections.

"The big problem for all of them is the very warm weather," says Nick Bubb, retail analyst at SG Securities. "It is pretty difficult to sell cold-weather clothes; Indian summers are never good."

Kingfisher, the DIY retailer which recently demerged Woolworths, is also reporting half-year results on Wednesday. Its profit margins at B&Q are expected to improve due to a price reduction programme. But after its victory in a hostile bid battle for Castorama, the French version of B&Q, investors will want to know if the business has been disrupted. "Kingfisher took great pains to indicate that strong operational management was in place, which does not accord perfectly with Castorama France's [recent] dismal performance," says Tom Gadsby at Williams de Broë. He predicts total pre-tax profits of £253m, up 16.5 per cent from the corresponding period the previous year. The City is hoping for news of a new chief executive – but will be disappointed.

Tesco will be reporting half-year results on Tuesday and sales and profits are expected to have grown, so nothing new there. The company is rapidly expanding abroad. Hungary is expected to show benefits, although there have been problems in Poland and Thailand.

However, as the results in the UK provide most of the company's profits, it will be the update on current trading that gets the stock market interested. Analysts are expecting competition to heat up in the UK and fear a price war could be unleashed. "Industry like-for-like growth last year was 6 per cent at its peak, but this year it will be 2 or 3 per cent in our opinion, so a battle for every margin basis point will start," says Jonathan Pritchard at UBS Warburg.

"The question is whether the perceived slowdown in sales growth has affected two of the better companies, Tesco and Morrisons," says Mr Bubb. "What vibes they give off on competition will be quite important."

A former comrade in the FTSE 100, Celltech, is not expected to reveal a return to form when it reports half-year results on Tuesday. This year the company's shares have sunk. There has been concern about the efficacy of a drug to treat Crohn's disease and the delivery date of a rheumatoid arthritis treatment, so updates would be appreciated. Falling half-year profits, to an expected £12m from £27.4m in last year's first half, will not cause too much grief because Celltech gets most of its pennies from cold and flu remedies, a winter phenomenon.

There will be a touch of magic at Bloomsbury Publishing, which reports first-half results on Tuesday. Investors will be hoping for news on JK Rowling's new book Harry Potter and the Order of the Phoenix. But it's not all about witches and wizards. Analysts will also be looking at the prospects for other high-profile authors. Dresdner Kleinwort Wasser- stein expects an update on a book deal with Sheila Hancock, for her biography of her late husband, the Inspector Morse actor John Thaw. The broker says this shows how Bloomsbury is becoming a big hitter in publishing. "Bloomsbury's success at securing it in a high-profile, highly competitive bid reflects just how far the group has progressed over the last five years," says DKW.

However, the company's financial results – sales are expected to be £24m with pre-tax profits of £3.1m excluding exceptionals – are still not enough to magic it up to the premier league.

National Express, the transport group, would kill for a reliable Hogwarts Express when it reports half-year results on Tuesday. Its traditional business of UK buses has been hit by high insurance costs, and investors should find out just how bad the situation is. But the most troubled section of the business is the UK Rail division. National Express operated the train that crashed at Potters Bar, although it is not implicated. Comments on the future of the creaking rail system are awaited.

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