After Next PLC (LON:NXT) kicked off the Christmas sales update season with a better than expected performance, the first full trading week of 2019 will bring statements from a slew of retailers, most notably Marks & Spencer Group PLC (LON:MKS) and Debenhams PLC (LON:DEB), and also three of the 'Big Four' supermarket groups.
Debenhams had a rough 2018 and the key Christmas trading period is unlikely to have provided much of a boost to the troubled department stores chain's full-year sales given the obstacles facing the group.
The company, which issues its trading update on Thursday, announced in October that it would close up to 50 of its underperforming stores after posting a record full-year loss of nearly £500mln.
“Debenhams hasn’t updated on trading since 25 October and we know from many of its competitors that November was a terrible month for retailers and December is also likely to have been a struggle,” noted AJ Bell investment director Russ Mould.
Mould said pictures on social media of the retailer’s messy shelves and the usual widespread discounts on goods over the Christmas trading period suggest Debenhams “continues to be stuck in a rut”.
Some of the problems have been out of the company’s control with the high street under pressure from weaker consumer confidence and online competition.
When Debenhams updates the market, areas of focus will be on any update the group provides about its restructuring and guidance for 2019 as Brexit approaches.
Any comment on Sports Direct International PLC’s (LON:SPD) stake in the group will also be eyed, with the firm having acquired department stores rival House of Fraser from administration last year, with its boss Mike Ashley offering Debenhams a loan deal before Christmas.
Little Christmas cheer likely from M&S
Clothing and food retailer M&S, which also issues its Christmas update on Thursday, is in a similar boat to Debenhams, with the firm currently closing 100 of its stores as part of a restructuring to move a third of its sales online after sluggish clothing sales.
But unlike Debenhams, M&S was struggling with its clothing division well before it could blame a challenging retail market.
Its issues have now spread to the food division with like-for-like sales falling 2.9% in the first half. Like-for-like clothing and home sales fell 1.1% in the period.
For the third quarter, UBS expects M&S to post a 1.5% drop in like-for-like clothing and home sales and a 2.5% decline in like-for-like food sales.
“The main risk in non-food will be from margin, where the full price participation may have been below expectations given industry discounting around Black Friday, and the mild weather,” UBS said.
“In food, second quarter like-for-like trends were weaker as the business switches from short-term promotions into lower headline prices. This could continue to affect sales short term, although may give a modest margin benefit.”
Aside from the general retailers, the three listed members of the ‘Big Four’ UK supermarkets club - J Sainsbury plc (LON:SBRY), Tesco PLC (LON:TSCO), and Wm Morrison Supermarkets PLC (LON:MRW) – will also all unveil trading updates in the coming week.
“The backcloth is mixed,” said analysts from Swiss bank UBS in a recent sector preview. “Disposable income is +3.5% year-on-year and unemployment near multi-decade lows. But consumer confidence is low, with Brexit uncertainty perhaps having an impact, whilst grocery market growth was sub-1% in November.”
Own brands in focus at Morrisons
UBS trimmed its forecasts for Morrisons given that the latest industry data has suggested slower than expected trading over the key holiday period.
It now expects the UK’s fourth-largest grocer to report sales growth of 0.5% in the final quarter of 2018, down from its previous estimate of 1.8%.
UBS also noted that Morrisons has the “toughest comparatives” of any of the ‘Big Four’, while the focus on Tuesday will likely be on the performance of its Makes It and The Best own brands.
Argos and clothing could weigh on Sainsbury’s
As for Sainsbury’s, which is looking to complete a £12bn merger with Wal-Mart Inc (NYSE:WMT) owned Asda, UBS's analysts are looking for a generally “robust” performance with its update on Wednesday, although they are concerned that weaker consumer confidence will hit sales in its clothing and general merchandise divisions.
The analysts said: “Market share should be robust across the store, but discretionary categories are likely to be impacted by weak consumer confidence. We model Retail like-for-like +0.3% (2Q19: +1.0%, 3Q18: +1.1%).”
“That said, Argos has been winning share in key categories and, with >250 shop-in-shops now open in Sainsbury’s, it should be a convenient choice for Christmas present buying. We expect GM total sales -0.5% (2Q19: +1.2%; 3Q18: -1.4%).”
Grocery momentum has improved of late, though, with recent Kantar data pegging Sainsbury’s as the fastest-growing ‘Big Four’ grocer.
Tesco to surprise on the upside?
While numbers have been trimmed at both Morrisons and Sainsbury’s, UBS reckons there is potential for a positive surprise in Tesco’s update on Thursday.
Investors haven’t heard from Dave Lewis and co for a few months and they’ve got a bit twitchy as a result: shares are down more than 10% since October’s half-year results were published, but UBS's analyts aren't so worried.
“Whilst the overall market has slowed, we remain sanguine on progress in Tesco's core UK business – the competitive offer is as sharp as it's been in years and mix benefits (supplier PL rationalisation; Finest*; General Merchandise streamlining) should drive margin rebuild. We think Christmas could deliver a positive UK like-for-like surprise vs. market expectations,” they said.
Ted Baker needs a hug
The company’s chief executive and founder Ray Kelvin has taken a voluntary leave of absence while sexual harassment claims against him are investigated. He is accused of forcing hugs and kisses on employees but has denied the claims.
Chief operating officer and chief financial officer, Lindsay Page, is leading the company until the probe has been completed.
The group is also dealing with the impact of a tough retail market and troubles at concession partner House of Fraser.
In the first half, the group’s profits fell 3.2% to £24.5mln after taking a one-off £0.6mln hit from debts owed by House of Fraser, which is closing down stores after being rescued by Sports Direct last August.
The fashion retailer still achieved 3.5% increase in revenue to £306.0mln for the period but warned that the rest of the year would be “challenging” given the struggles on the high street.
Ted Baker will publish its Christmas trading update for the five weeks to January 5 on Wednesday and investors will be hoping the group managed to deliver further sales growth despite its challenges.
Majestic Wines hoping to toast better new year
The AIM 100 wine seller will also be looking for some better news after a weak set of first-half results that saw it swing to a loss as a weak UK market bit into its earnings.
The firm reported a pre-tax loss for the period of £0.2mln, down from a £3.1mln profit last year despite revenues climbing 5.4% to £229.1mln.
While Majestic did add that it was aiming to invest an additional £9mln-£12mln in the 2019 financial year in its online Naked Wines business aimed at driving more growth, the company forecast flat pre-tax earnings for the full year in its outlook so investors will be looking for anything that could indicate signs of growth in the short term.
Topps Tiles likely to update on Brexit inventories in update
Another victim of the high street's struggle this year, Topps Tiles Plc (LON:TPT), will release its Xmas trading update on Wednesday, with investors likely on the lookout for any turnaround following a drop in full-year profits in its results in November.
Any updates on potential Brexit-related disruption will also likely make an appearance as the deadline for Britain’s exit looms closer with little sign of a deal.
The group said at the time that it would increase the inventory of its important products to protect against supply chain disruptions from Britain's exit from the European Union, so any deviations from this will be closely watched.
Uncertainty to impact demand for Taylor Wimpey
Away from the retailers, the UK’s second-largest housebuilder Taylor Wimpey PLC (LON:TW.) will issue a trading update on Wednesday having warned in November that it was seeing “some signs of customer caution” in the property market.
The FTSE 100 company said on 13 November 2013 that it had £2.4bn worth of orders in the pipeline, some 9% more than it had this time last year and at the upper end of management’s expectations.
But despite these “solid” forward sales indicators, Taylor Wimpey said the current “heightened political and economic uncertainty” means it has seen a drop-off in demand, particularly in the south east of England.
At the start of December, analysts at UBS slashed their target price for Taylor Wimpey shares by 11% to 190p, down from 213p, in a cautious note on the sector.
The Swiss bank’s analysts said that housebuilder stocks are likely to remain volatile until there is any real breakthrough with Brexit.
Significant announcements expected for the week ending Jan 11:
Monday January 7
Economic data: US ISM non-manufacturing report; US factory orders
Tuesday January 8:
Economic data: Halifax UK house price data; US balance of trade; US JOLTS jobs openings; US consumer credit
Wednesday January 9:
Trading update: J Sainsbury plc (Q3) (LON:SBRY), Taylor Wimpey PLC (LON:TW.), Ted Baker PLC (LON:TED), Topps Tiles Plc (LON:TPT), Majestic Wine PLC (LON:WIN), Greggs plc (LON:GRG), B&M European Value Retail SA (LON:BME)
Economic data: UK productivity data
Thursday January 10:
Trading update: Tesco PLC (LON:TSCO), Marks & Spencer PLC (LON:MKS), Debenhams PLC (AGM) (LON:DEB), DFS Furniture Plc (LON:DFS), Mothercare plc (LON:MTC), Card Factory PLC (LON:CARD), Premier Oil PLC (LON:PMO), InnovaDerma PLC (LON:IDP)
Economic data: UK industrial, manufacturing production; UK construction output; UK trade; US weekly jobless claims; US new home sales; US wholesale inventories
Friday January 11:
Economic data: US CPI; US retail sales