The health of the UK retail sector will be assessed once again on Tuesday, with revamping department stores group Debenhams PLC (LON:DEB) and floor coverings retailer Carpetright PLC (LON:CPR) both providing updates, and the latest CBI distributive trades report also due.
Back in April, Debenhams revealed that is considering the closure of up to 10 of its 176 stores and plans to enhance its digital offering following a strategic review by its new boss, Sergio Bucher, as it reported a fall in first-half profits.
READ: Department stores group Debenhams considering 10 store closures and plans to enhance its digital offering
The group - which is ranked second behind the UK’s number one department store chain, employee-owned John Lewis by revenue - reported pre-tax profit of £87.8mln for the 26 weeks to March 4, down 6.4% from the £93.8mln reported a year earlier.
The firm said its first-half UK like-for-like sales rose by 0.5%, reflecting further progress in growing non-clothing categories and strong online momentum – mobile orders were up 64%.
Analysts at Swiss bank UBS are forecasting Debenhams’ third-quarter sales growth to be 1%, including a 2% foreign exchange benefit, which implies a -1% decline in like-for-like sales, broadly the same as the implied second quarter run-rate, but a slowdown from the first-half.
In a preview, the analysts noted that the British Retail Consortium’s non-food like-for-likes sales growth for the March to May period slowed to -0.3%, with clothing the second weakest category over that period and health and beauty in the middle of the pack.
They also said there may be “some pressure on the -25bp gross margin if the sale intensity has increased but given the weighting of sales to H1 and the tightening of the guidance in late April it would have to be a very significant mid-season sale period in May.”
Tougher times for floorcoverings
Meanwhile Carpetright warned at the end of April that its full-year profits would be at the bottom end of market forecast as conditions in the UK had got tougher in the fourth-quarter.
Management guided that full-year pretax profit would be in the £13.9mln-£16.2mln range of expectations, against the then consensus of £15.2mln.
READ: Carpetright downbeat as UK conditions toughen
Carpetright’s UK like-for-like sales were up +1.4% for the 12 week period to 22 April, down from +1.9% growth in the third quarter, and below market expectations.
In a preview, analysts at Deutsche Bank said: “We think weaker store traffic has offset continued growth in average transaction value. Although a later Easter yoy and tens of basis points of disruption from an accelerated pace of store refurbishment were unhelpful, we believe the sales growth was fairly consistent across the three months, reflecting these footfall trends.”
Financial Stability Report a signpost for BoE action
On the economics front, traders will be searching the Bank’s of England’s latest quarterly Financial Stability Report for clues on whether an interest rate rise in the UK is coming soon.
Three of the eight current members of the Monetary Policy Committee voted for a rise at their last meeting, with one, the departing Kristin Forbes saying the bank has to start taking hard decisions.
Last week Andy Haldane, the Bank’s chief economist expressed a willingness to vote for a rate rise soon, a day after his boss, BoE governor Mark Carney played down the likelihood of a move.
Traditionally considered to be one the doves on the committee, Haldane said: “The balance of risks associated with tightening 'too early', on the one hand, and 'too late', on the other, has swung materially towards the latter in the past six to nine months."
Monetary policy issues aside, the FSR should also indicate that the buffer held by banks against a deterioration in the UK credit cycle will rise to 0.5% from zero currently, while consumer credit reviews currently underway may see a tightening of capital requirements.
Significant events on Tuesday 27 June:
Trading update: Debenhams PLC (LON:DEB); Petrofac PLC (LON:PFC)
Finals: Carpetright PLC (LON:CPR), IG Design (LON:IGR); BCA Marketplace PLC (LON:BCA); Findel PLC (LON:FDL); Polar Capital Holdings plc (LON:POLR); Photo-Me International plc (LON:PHTM)
Interims: Velocity Composites PLC (LON:VEL); Benchmark Holdings PLC (LON:BMK); Lakehouse PLC (LON:LAKE); Porvair PLC (LON:PRV), Blue Prism Group (LON:PRSM)
Economic news: Bank of England’s financial stability report; CBI distributive trades report