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High street vs online: Updates from retailers Mark & Spencer and ASOS will provide fuel

Aside from M&S and ASOS, the week ahead will also bring trading updates from the likes of Ocado, Burberry, Barratt Development, Experian, and JD Wetherspoon
M&S store worker
With a difficult retail market hurting its already struggling clothing division, it’s probably fair to say M&S has seen better days

There will, once again, be a retail theme to the corporate news in the coming week, with trading news due from high street stalwart Marks & Spencer Group PLC (LON:MKS) and online fashion retail giant ASOS plc (LON:ASC).

With a difficult retail market hurting its already struggling clothing division, it’s probably fair to say M&S has seen better days.

The FTSE 100-listed retailer, which should report trading news when it holds its annual general meeting on Tuesday, plans to close 100 UK stores by 2020 as part of an overhaul to reduce the amount of space devoted to the clothing and home arm.

In the year to March 31, M&S’s like-for-like sales in clothing and home fell 1.9% with the firm having suffered sluggish sales in the division for some time, but weak consumer confidence and online competition has added to its troubles and undermined efforts to turn around the business.

Food sales have also weakened, down 0.3% on a like-for-like basis last year, as hard-hit consumers cut back on spending and shop at discounters Aldi and Lidl.

Investors will be hoping to hear at the AGM that the company’s performance has improved since full-year results in May and will be listening out for any updates on the progress of its restructuring.

Warm weather to boost ASOS sales

In contrast to the high street rooted M&S, online fashion retailer ASOS plc (LON:ASC) is expected to report a sharp rise in third-quarter sales on Thursday as the AIM-listed group continues to benefit from the e-commerce boom.

UBS has forecast a sales increase of 23% for the quarter to June 30 with warmer weather boosting demand for ASOS’s summer clothing ranges.

The Swiss bank sees no change to the full year sales guidance of 25-30% growth and an underlying earnings (EBIT) margin of 4%.

Looking ahead, UBS thinks there is likely to be more focus on developments in the US after the Supreme Court overturned a ruling that allowed pure-play online retailers to avoid sales tax in the country.

ASOS will need to levy sales tax in more states after the June 22 ruling, which knocked its share price at the time.

“However, given differing state level threshold order values, the impact may be limited,” UBS said.

“Perhaps more interesting is the requirement to pay 18-20% import duty as more orders are fulfilled from the new US DC. This cost should be covered by lower fulfilment costs, but more clarification would be useful.”

Transformational first-half for Ocado

Online grocer Ocado PLC (LON:OCDO) has had a spectacular first-half, signing a clutch of important international deals for its Smart solutions platform, most notably with American retail giant Kroger Co (NYSE:KR) in May, and gaining promotion to the FTSE 100 index.

However, interim results on Wednesday from the online grocer - which is fast transforming into an international technology and fulfilment specialist – are unlikely to excite too much given that all the technology partnership deals (Kroger’s was its fifth in a year) coming with costs.

Ocado saw its first-quarter retail revenue rise by 11.7% to £363.4mln, against guidance for the current year of 10%-15% growth, although that was below the 2016-2017 growth rate of 12.4% with trading in the period impacted by wintry weather.

The firm’s average orders per week in the first-quarter rose by 11.1% to 280,000, up from 252,000 a year earlier, though order size declined slightly to £110.45, from £110.85 a year earlier, with inflation offset by reduced items per basket.

Luxury gap at Burberry

A first-quarter trading update from Burberry PLC (LON:BRBY) on Wednesday – and its AGM on Thursday - will be the first chance for the luxury goods giant’s new management team to deliver their vision for the group.

In early March, Burberry appointed Riccardo Tisci as its new creative chief, and in April the group also appointed Gavin Haig to a newly created position of chief commercial officer, completing chief executive Marco Gobbetti’s team, with Gobbetti having taken over from Christopher Bailey last July.

In a recent preview, analysts at JPMorgan Cazenove said they expect the FTSE 100-listed firm to report a 4% rise in first-quarter like-for-like sales, helped by the relaunch of the firm’s heritage trench coat in April and old creative chief – and former CEO - Bailey’s penultimate collection.

They think this should lead to a 0.5% increase in first-quarter retail sales to £480mln which would remain relatively subdued growth versus their  expectations for Burberry’s peers in what they said has been cited by luxury executives as a rather favourable luxury spend environment in the year-to-date.

The analysts think investors will also be keen to get granularity as to the spend of the Chinese consumer through the period.

They expect Burberry’s underlying outlook to be reiterated with a lower adverse foreign exchange impact of around £30mln for the full-year against previous guidance for £40mln.

The analysts noted that the expected lower adverse forex impact has driven a 3% increase to their current year estimates, with no change beyond then.

Upbeat update seen from Barratt Developments

Wednesday’s trading update from blue chip housebuilder Barratt Developments PLC (LON:BDEV) is likely to be another upbeat statement.

In mid-May, the company reported its outlook for the full-year (to the end of June) remained unchanged. Net private reservations per edged up to an average of 302 from 299 in the corresponding period of 2017.

The sales rate of 0.8 net private reservations per active outlet per average week so far in 2018 had been in line with the previous year. Total forward sales were at record levels, up 2.5% year-on-year as at May 6 to £3.29bn, versus £3.21bn at the same stage of 2017.

Having said all that, the shares have been miserable performers this year, tumbling from around 650p to 500p, and shareholders will be hoping the management still sounds as confident in July as it did in May.

Deutsche Bank thinks Barratt shares are undervalued, though it admits the second half of the financial year will have seen dilution to margins as a result of the increased proportion of central London completions; London sites have been declining in profitability of late.

“However, as the central London exposure trades out, we believe the greater evidence of margin improvement, latterly followed by completions growth, should provide incremental upside to consensus estimates,” the German bank said in a preview.

Giving credit to Experian

Friday’s trading statement from FTSE 100-listed consumer credit reports group Experian PLC (LON:EXPN) should be positive for investors.

In a preview of the Experian update, Graham Spooner, investment research analyst at The Share Centre, commented: “The share price hit an all-time high in June on expectations that the group will continue to make steady progress and the fact that they have a dominant position in its market place.”

He added: “Areas to concentrate on will be emerging market performance, its key Credit Services and Decision Analytics businesses, effects of FX movements and the UK and Ireland business which has been under pressure.”

Experian will likely be hoping to beat the forecasts from analysts at Deutsche Bank, who downgraded the stock to ‘hold’ from ‘buy’ in June in anticipation of slower growth in the second half of its financial year.

Progress needed from Micro Focus

Half-year results from blue chip software and IT firm Micro Focus International PLC (LON:MCRO) on Wednesday will be closely watched after the group cut its revenue guidance in March on lower-than-expected licence income.

Analysts at UBS are predicting that the interim results will focus on progress made in resolving the group’s IT and sales attrition that caused the revenue miss as well as cash flow and debt issues and the rate of decline in the business.

In a preview they said: “Notwithstanding the weak guidance for the balance of the year, we note the licence comparatives are now getting very easy – in the October 2017 semester HPE Software reported a 20% licence fall, while Micro Focus was -17%.

“The April 2018 period is likely to be even worse, and investors will also scrutinise maintenance: In the 6 months to October 2017, both businesses saw around a 3% fall – it may well be worse in this reporting period.”

CO2 shortage focus for Wetherspoon?

Expect a lot of gas from JD Wetherspoon PLC’s (LON:JDW) pre-close trading update on Wednesday, and no, we’re not talking about the usual Brexit rant from the value pub chain’s founder and chairman Tim Martin.

Investors will instead be looking to see what effect the recent CO2 shortage has had one beer sales.

At the end of June, some ‘Spoons ran out of John Smith’s and Strongbow as the shortage hit suppliers, even some of the big names such as Heineken.

Also of interest will be the impact of the World Cup as most of the chain’s pubs don’t usually show football to try to create a family-friendly atmosphere.

Given England’s success at the current tournament, that is likely to have dented sales somewhat.

The recent warm weather should have offset some of that, though. Us Brits have reportedly been pouring into our local watering holes up and down the country to sink a jar or two, with pubs with beer gardens benefitting the most.

Staffing issues

A big batch recruiters are also due to update in the coming week, with Robert Walters (LON:RWA) (Tuesday), PageGroup PLC (LON:PAGE) (Wednesday) and Hays plc (LON:HAS) (Friday) all set to issue trading statements.

As has been the case for the past two years, the focus will be on the UK and how the jobs market is standing up given the uncertainty around Brexit.

Business confidence took a hit after the UK voted to leave the European Union, prompting firms to take a more cautious approach to hiring.

That has affected the recruiters – or talent acquisition specialists, as some like to be called – with only Robert Walters posting a rise in UK net fee income in the last round of updates.

Recent economic data has suggested consumer confidence is on its way back up after the first quarter blip though, so it will be interesting to see if business confidence is following suit.

Uncomfortable reading from Dunelm

If profit warnings really do come in threes then shareholders in Dunelm Group PLC (LON:DNLM) will be nervous ahead of the retailer’s trading update on Thursday.

The curtains and cushions flogger warned at the end of May that it had recently experienced trading conditions that have been materially more challenging than had been expected, within a soft homewares market.

Like-for-like (LFL) sales in the fiscal fourth quarter were running 4.7% below the same quarter of 2017 in the bricks & mortar estate, although thanks to a 43.7% year-on-year increase in online sales, LFL sales overall were 0.1% higher than a year earlier.

The retailer said it expects total sales for the full-year to be in the region of £1.05bn, up from £955.6mln the year before.

JP Morgan Cazenove was sceptical about the retailer’s ability to turn things around given the uncertain consumer environment, with spending on big-ticket items particularly weak.

Dunelm shareholders can take heart, however, that shortly after the profit warning in May, the chairman, Andy Harrison, bought 92,452 shares at 547.53p a pop, which is a show of faith costing more than half a million quid.

Significant announcements expected this week:

Monday July 9:

Trading update: Centamin PLC (Q2) (LON:CEY)

Finals: Abbey PLC (LON:ABBY)

Economic data: US consumer credit

Tuesday July 10:

Trading updates: Marks & Spencer PLC (AGM) (LON:MKS), Robert Walters PLC (LON:RWA), Kier Group PLC (LON:KIE), ITE Group PLC (LON:ITE), Dechra Pharmaceuticals PLC (LON:DPH), Young & Co.’s Brewery PLC (LON:YNGA)

Interims: Ocado PLC (LON:OCDO)

Finals: AdEPT Telecom plc (LON:ADT), Begbies Traynor Group PLC (LON:BEG), Jaywing Plc (LON:JWNG), Photo Me International PLC (LONLPHTM)

Economic data: UK construction output; UK trade numbers; German ZEW economic sentiment survey; US JOLTS jobs

Wednesday July 11

Trading updates: Barratt Developments PLC (LON:BDEV), Burberry PLC (Q1) (LON:BRBY), PageGroup PLC (LON:PAGE), JD Wetherspoon PLC (LON:JDW), Hotel Chocolat PLC (LON:HOTC)

Finals: Micro Focus International PLC (LON:MCRO)

Interims: Low & Bonar PLC (LON:LWB)

AGMs: BT Group plc (LON:BT.A), J Sainsbury plc (LON:SBRY), Aveva PLC (LON:AVA)

Economic data: US forward PPI; US wholesale trade

Thursday July 12:

Trading updates: ASOS plc (LON:ASC), Dunelm Group PLC (LON:DNLM), B&M European Retail PLC (LON:BME), Premier Oil PLC (LON:PMO), Ten Entertainment Group PLC (LON:TEG)

Interims: Dart Group PLC (LON:DTG)

Finals: ReNeuron Group Plc (LON:RENE)

AGMs: Burberry Group PLC (LON:BRBY), Land Securities PLC (LAND)

Ex-dividends: To clip 0.12 points off the FTSE 100 index - Halma PLC (LON:HLMA)

Economic data: US CPI; US weekly jobless claims

Friday July 13:

Trading updates: Experian PLC (LON:EXPN), Hays plc (LON:HAS), DCC Plc (LON:DCC), Ashmore group PLC (LON:ASHM), Workspace Group plc (LON:WKP), DP Eurasia NV (LON:DPEU)

Economic data: RICS UK house price survey; US import and export prices; University of Michigan preliminary consumer confidence index


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