Clothes retailers Next and Ted Baker in the spotlight on Thursday

Not much excitement is expected from the Bank of England, so investor attention will instead be on two of the UK’s troubled clothes retailers: Ted Baker and Next

man hugging woman
Could Ted Baker cut its dividend in Thursday’s full-year results?

Ahead of its annual results on Thursday, Next PLC (LON:NXT) cut its profit guidance due to weaker margins and operational costs.

The fashion retailer expects full-year profit of £723mln for the 2019 financial year, down from a previous forecast of £727mln, despite defying a high street downturn to deliver a 1.5% increase in total full price sales over the Christmas period.

For 2020, the company estimates profit will fall to £715mln in 2020 and sales will rise 1.7%.

UBS said the 1% decline in 2020 profits reflects ongoing channel shift pressures on cost ratios.

The investment bank added: “At this early stage in the year, and with Brexit-related uncertainties persisting, we would be surprised to see any change in guidance.”

Divi could be cut by Ted Baker after profit warning

Ted Baker PLC (LON:TED) also reports its full-year results on Thursday in the wake of the resignation of its chief executive and a profit warning.

Founder Ray Kelvin stepped down as chief executive of the fashion firm earlier this month after taking a voluntary leave of absence following allegations he harassed staff with “forced hugs” and ear kissing.

The harassment claims are likely to outshine annual results from Ted Baker, which warned in February that profits would be lower than expected due to stock write-downs, foreign exchange and additional product costs.

Profit before tax is expected to be in the region of £63mln, but this is before another raft of one-off charges related to an independent investigation into Kelvin’s conduct, House of Fraser bad debts and the acquisition of No Ordinary Shoes.

“Despite increasing competition, we think sales will still be moving in the right direction,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

“The question will be if that’s coming at the expense of profitability. Discounting means margins could be under pressure, and it’s important these aren’t pushed too far. They currently stand at around 13%.”

The analyst said there is also a chance the dividend could be reduced.

The company has a strong track record of shareholder returns but its policy of paying out about half of their earnings means February’s profit warning could impact the dividend, Lund-Yates said.

Aramco update and cash news eyed from Lamprell

In a pre-close trading update in January, Lamprell PLC (LON:LAM) said its full-year performance would be in line with forecasts, with a year-end cash balance of around US$80mln, so investors may be looking for how the oil rig builder intends to spend its new money when it reports its finals on Thursday.

There will also be expectations of an update on the Long-Term Agreement (LTA) programme with oil giant Saudi Aramco after the company said it expected opportunities under the US$27.5bn programme to “materialise in 2019 and beyond”.

UK rate hike inconceivable

With Brexit uncertainties at a peak, it is inconceivable that there will be an outcome other than a unanimous 9-0 vote from the Bank of England Monetary Policy Committee (MPC) to keep UK interest rates on hold on Thursday.

The sharp slowdown in the economy in the fourth quarter of 2018 and weak activity overall in the first quarter - amid heightened Brexit uncertainties and a weakened global economic environment - has diluted the case for any near-term increase in interest rates, according to Howard Archer, chief economic advisor to the EY ITEM Club.

In a preview of the MPC decision, he said: “We believe that it is ever more likely that the Bank of England will hold interest rates throughout 2019 - assuming the UK ultimately leaves the EU with a ‘deal’.

“If there is a UK exit from the EU with a ‘deal’ by the end of the second quarter, it is possible that the Bank of England could raise interest rates from 0.75% to 1.00% in November if the economy is showing improvement helped by reduced uncertainty. Even if this is the case though, the MPC may prefer to hold off acting for longer until there is sustained evidence of stronger UK economic activity.”

Significant events expected on Thursday March 21:

UK Bank of England rate decision

Finals: Next PLC (LON:NXT), Ted Baker PLC (LON:TED), Lamprell PLC (LON:LAM), Enquest PLC (LON:ENQ), Cello Health plc (LON:CLL), LoopUp Group PLC (LON:LOOP), Portmeirion Group PLC (LON:PMP), Integrated Diagnostics Holdings PLC (LON:IDHC),  Sopheon PLC (LON:SPO), Sportech plc (LON:SPO), Venture Life PLC (LON:VLG)

Interims: Xaar PLC (LON:XAR), Spitfire Oil Ltd (LON:SRO)

Trading update: MITIE Group PLC (LON:MTO), IG Group Holdings PLC (LON:IGG)

Ex-dividends to knock 7.5 points off FTSE 100 index: British American Tobacco plc (LON:BATS), Phoenix Group PLC (LON:PHNX), Royal Bank of Scotland PLC (LON:RBS), Segro PLC (LON:SGRO)

Economic data: UK retail sales; UK public sector finances; US weekly jobless claims; US Philly Fed manufacturing index

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