A batch of retailers and housebuilders release their latest results in the week ahead with investors waiting to find out how they handled what has been a difficult time for the two sectors.
The UK retail market has been hit by weaker consumer confidence and the so-called Amazon-effect – a term used to describe the growing number of people that shun the high street for online shopping.
A number of retailers, including House of Fraser, Debenhams PLC (LON:DEB), Marks & Spencer (LON:NKS) and Next Plc (LON:NXT), have recently announced plans to close down stores and focus on digital services. In non-food retail, tough competition from discounters Aldi and Lidl has been the biggest challenge for supermarkets.
For the housing market, recent data has revealed a slowdown in UK house price growth as a pressure on household finances and economic uncertainty has kept buyers away. The latest report from Nationwide revealed prices in June rose at the slowest rate in five years and that surveyors continue to report subdued levels of new buyer inquiries.
Dull first-quarter trading seen from Sainsbury’s
It looks like the planned merger with Walmart Stores Inc (NYSE:WMT)-owned Asda could be badly needed by J Sainsbury plc (LON:SBRY), if Wednesday’s first-quarter trading update from the supermarkets group proves the glum reading expected.
The latest industry data from Kantar Worldpanel revealed that sales at Sainsbury’s fell by 0.2% in the 12 weeks to June 17, while all its ‘big four’ rivals saw sales increase, with Asda, Tesco PLC (LON:TSCO), and WM Morrison Supermarkets PLC (LON:MRW) up by 1.8%, 1.4%, and 1.9% respectively.
The June Kantar data was a reversal from the 12 weeks to April 22, when the UK’s second-biggest food retailer saw its sales rise by 0.2%.
For the first quarter, analysts at Barclays Capital expect Sainsbury’s to report a like-for-like sales drop of -0.1%, down from 0.9% growth in the fourth-quarter of last year.
But despite that forecast sales decline, Barclays raised their rating for Sainsbury’s to ‘overweight’ from ‘equal-weight’ as they assume an 80% chance of success for the proposed merger with Asda.
The upgrade came as the bank’s analysts increased their target price for the FTSE 100-listed firm to 375p from 300p previously, adding that they believe Sainsbury’s is worth 400p per share on a merged basis and 285p on a standalone basis.
Aside from the headline sales figures, investors will also be keen to see the performance of last year’s Argos stores acquisition, as well as Sainsbury’s convenience stores and online business.
For Bovis, the challenge is to grow margins while addressing the issues that saw it get a reputation for shoddy standards.
Feedback from the May 24 capital markets day for investment analysts indicated that management is now more confident on the margin improvement it is expecting from a new range of house types.
The day after the capital markets day a report from Liberum said “the visit yesterday gives confidence that planned benefits will be delivered and even hints at outperformance against published targets,” so the update may contain some good news for Bovis shareholders.
Bovis's erstwhile chief executive (CEO) David Ritchie walked the plank at the beginning of last year following a profit warning and for a while, it looked like Persimmon's extravagantly remunerated CEO, Jeff Fairburn, might also head for the exit this year at the height of the outrage over his record-breaking bonus scheme.
In the end, it was chairman of the board Nicholas Wrigley and Jonathan Davie, chairman of the remuneration committee, who took the hint when a metaphorical loaded revolver was passed around with the port and brandy.
Persimmon said in April it had seen robust trading this year, with forward sales revenue, including completions, up by about 8% to £2.76bn in the year to date.
Average selling prices for its homes rose to £236,500, up from £229,500 a year earlier, as the company said that pricing conditions remain firm across its regional markets.
“There has been a notable fall in activity in the London market and investors will want to hear if this is impacting on the rest of the country. By looking at their peers, one would say no, but a more cautious stance to land and plot acquisition strategies could be taken by management given the number of macro-economic uncertainties,” suggested Graham Spooner, an investment research analyst at The Share Centre.
Purplebricks full-year earnings
Investors will be hoping for good news from the firm following its recent announcement that it is expanding its US presence into Las Vegas and Phoenix after previous launches in New York and California.
The firm received a boost for its US expansion in late March when German digital publisher Axel Springer purchased an 11.5% stake in the company for £125mln.
However, there will also be caution around a slowdown in the UK property market and if it has impacted the company’s balance sheet, particularly following the adverse weather in February and March of this year.
Primark’s US progress eyed at AB Foods
Despite the name, Associated British Food PLC’s (LON:ABF) Primark stores are the star assets, and the discount fashion chain will be the focus again in Thursday’s third-quarter trading update.
Even without an online presence, Primark’s low prices and wide offering mean sales are holding up pretty well during a difficult time for many bricks-and-mortar retailers.
UBS analysts reckon like-for-like sales will dip by 1%, albeit against some strong comparatives while the recent good weather could see that figure improve.
Investors will be looking for any commentary surrounding Primark’s roll-out in the US. It currently only has eight stores across the pond but the potential is massive, so any signs that the brand is gaining traction there is likely to be cheered.
Away from Primark, sugar is the only other division likely to move the dial. Prices are falling though, which is likely to pressurise the bottom line once again.
Strong start to second half needed for Topps
The tiles retailer saw profits plunge in the opening six months of its fiscal year, blaming the Beast from the East and a general “softening” of the market.
Sales have held up pretty well, but that’s been largely down to various sales and promotions which certainly haven’t helped the bottom line.
Despite the “cautious” outlook for the remainder of the year, Topps has refused to budge on its full-year forecasts, which means it will need to have made a good start to its second half.
SuperDry unlikely to provide surprises
The group expects pre-tax profit of £96.5mln to £97.5mln, up 11% year-on-year.
Analysts believe the focus will be on any comments about current trading, brand performance and the balance sheet.
Eve Sleep interims to spark pillow fight
In March, the AIM-listed firm reported 132% leap in revenue to £27.7mln in 2017 and 57.7% jump in its gross profit margin.
However, the company made an adjusted underlying loss (EBITDA loss) of £15.1mln, an increase from a £11.3mln underlying loss in 2016.
Chief executive Jas Bagniewski said the group was still targeting UK profitability at the end of 2018 and group profitability by the end of 2019 after signing deals with BUT in France, Next Plc's (LON:NXT) Homeware business in the UK and Karstadt in Germany.
Contracts key for Costain
Things could be worse for the construction and engineering firm, which indicated at May's annual general meeting that it was trading in line with expectations.
City analysts expect a little bit of slippage in the order book from the £3.9bn position reported in March but explain that this due more to the timing of contract wins and regulatory spend period.
The company describes itself as “the smart infrastructure solutions company” and having moved into a new technology centre in Somerset in the middle of June, Tuesday's statement may contain more detail on the “cutting edge technology solutions” it is now able to provide as a result of broadening its activities.
The company has won a number of contracts over the past month or so, including the M6 J21a-26 smart motorway contract and Motorway Incident Detection and Automated Signalling technology systems contract for Highways England.
US jobs on tap
Even though the July 4 Independence Day holiday on Wednesday is likely to keep US markets fairly quiet in the coming week, the June non-farm payrolls report is expected to add some excitement on Friday.
When raising US interest rates by 0.25% once again last month following its latest policy meeting, the Federal Reserve highlighted “strong” job gains in recent months, and a continuation of that trend could see the pace of monetary tightening pick-up in the future.
US non-farm payrolls increased by 223,000 in May, well above forecasts for a 188,000 increase, while the jobless rate declined again to 3.8%, its lowest level since April 2000.
Economists expect that jobs growth to moderate in June, with David Morrison, senior market strategist at GKFX.Com forecasting a figure of around 185,000, while the jobless rate is seen holding steady.
US average earnings grew by 2.7% in May, up from 2.6% in April, with that level also expected to be maintained for June, according to GKFX’s Morrison.
Significant announcements expected this week:
Monday July 2:
Economic data: UK manufacturing PMI; US ISM manufacturing; US manufacturing PMI; US construction spending
Tuesday July 3:
Traffic stats: Wizz Air PLC (LON:WIZZ)
Economic data: UK construction PMI; US factory orders
Wednesday July 4
US Independence Day:
Economic data: BRC shop price index; UK services PMI
Thursday July 5:
Economic data: Halifax UK house price index; US weekly jobless claims; US Challenger job cuts; ; US ADP employment; US ISM non-manufacturing; US services PMI; US composite PMI; FOMC meeting minutes
Friday July 6:
Economic data: US non-farm payrolls; US average earnings; US balance of trade