Department store chain Debenhams plc (LON:DEB), like the rest of the retail sector, faces challenges of rising inflation, fierce competition and a switch in consumer spending habits.
The company, which will publish its interims, has also seen import costs rise on a weaker pound following last June's Brexit vote. Debenhams sources about 30% of its cost of goods sold in US dollars, which HSBC expects will carve into full year profits.
Debenhams has 165 UK department stores with an average lease length of 20 years.
“This reduces the ability to adapt the cost base to reflect the structural shift in consumer spending habits towards online,” HSBC said.
The company is also expected to suffer at the hands of a slowdown in UK demand.
HSBC believes chief executive Sergio Bucher’s strategic options will be limited to store upgrades and an increased focus on online to help mitigate an expected decline in like-for-like sales.
“While the group has c20% international revenue exposure and generates a further c20% of sales online, these have failed to drive meaningful incremental revenues, that latter partly achieved at the expense of store-based sales and higher incremental variable cost."
Unilever's first quarter...
Consumer goods giant Unilever plc (LON:ULVR) has been reshaping its business since its failed £155bn takeover attempt by US giant Kraft Heinz and this will be a key focus when it reports its first quarter results.
As part of its restructuring, the group earlier this month announced plans to sell its margarine business, which includes household brand Flora.
Unilever, which also owns Dove soap, Lynx and Domestos, raised its cost savings target to €6bn from €4bn and said that it was on track to deliver full year underlying sales growth of 3-5% despite “continued challenging market conditions”.
The company plans to lift its dividend by 12% for the coming year and investors will be keen to see how much the board recommends for the first quarter.
Numis said some of the issues in the fourth quarter, such as a weak economy in Brazil and poor tourism in Turkey, could remain a restraint in the first quarter. The broker expects like-for-like sales growth of 0.6%.
“ For the record note too that a) the late Easter may have some impact in 2017, and b) the group said on 26 January that there will be one less working day in Q1 this year (and if there are usually, say, 60 days then 1 less = -1.7%),” said Charles Pick.
Sky's third quarter...
Sky plc (LON:SKY) will report its third quarter results amid investigations by UK regulators into Rupert Murdoch’s plans to take full control of the broadcaster.
Analysts at Credit Suisse said Sky’s UK performance in the third quarter was likely affected by strong competition and weak consumer confidence.
They expect Sky added 30,000 net new customers in the UK, compared to 70,000 the same period a year earlier.
Murdoch’s 21st Century Fox wants to buy the 61% of Sky that it does not already own for £11.7bn. The European Commission has cleared the deal but Ofcom and the Competition Markets Authority in the UK are looking into whether Murdoch’s proposed acquisition will give him too much control of news output. The regulators are required to report back to the government by 16 May.
Thursday 20 April
Interim Result
Unilever PLC (LON:ULVR);Torchmark Corporation (LON:TMK); Sky PLC (LON:SKY); Debenhams PLC (LON:DEB)
Final Result
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