It’s another fashion week for London investors, with couture from Burberry, online from ASOS and posh wellies from Joules, with the pub sector serving up important post-Christmas updates too.
There are also reports scheduled from FTSE 100 names easyJet and Sage, as well as interest rate decisions from central banks of China, Japan, Canada and the EU, plus more economic data to fuel the following week’s decision from the Bank of England.
With no major change expected in any policy settings from next week’s group, it will be the UK labour market data on Tuesday and flash purchasing managers’ index (PMI) numbers on Friday that will be under close scrutiny with expectations elevated for a rate cut.
Although the meeting is still well over a week away, the debate is at the top of the domestic business agenda, with economists at Berenberg highlighting the case for and against.
“In a low interest rate environment, central banks should err on the side of caution when downside risks emerge. With more power to lower inflation than to raise it, monetary policymakers might be inclined to overreact with too much stimulus and, if needed, hike rates later to correct course,” was the supportive argument for a cut.
The case for holding rates is that the election win for the Conservatives and the ‘phase one’ US-China trade deal have reduced uncertainty and the downside risks to the outlook, with business and consumer surveys showing a sharp bounce in confidence and expected economic activity.
“All eyes” are on Friday's flash PMIs, said Samuel Tombs at Pantheon Macroeconomics, as markets “have been too hasty” to believe that the BoE will cut rates at its upcoming meeting.
Burberry’s drop in Hong Kong may be coated by other regions
The biggest name in the fashion week will be Burberry Group PLC (LON:BRBY) as it shows off third-quarter trading on Wednesday, with its shares not far from all-time highs despite disruption in its key market of Hong Kong.
At November’s interim results, the FTSE 100-listed luxury brand said a small decline in profit margins was likely to get worse in the second half.
However the market is upbeat as sales across other regions will make up for the slowing sales from higher-margin Hong Kong, as customers have been responding well to designs under its new leadership team.
The luxury goods firm is in the second year of chief executive Marco Gobbetti's plan to shift the brand further upmarket under new creative director Riccardo Tisci.
Signs that this may be working were perceived in like-for-like retail store sales rising 4% thanks to new collections growing at strong double digits in the first half.
ASOS’s new outfit could boost festive sales
No longer ‘king of AIM’, it has a lot to prove after a disastrous year of profit warnings and logistics mishaps.
However, the market is increasingly being persuaded the solutions put in place are producing improvement.
Analysts at Peel Hunt drew a “line in the sand” at 15% sales growth, saying a lower number will be “disappointing” for the peak festive period, while a higher number will reassure investors that management can resolve last year’s issues and regain customers in Europe.
They see Europe growing 15%, with UK and US around 13%.
Shore Capital also expressed a bullish approach, upgrading the online retailer to ‘hold’ from ‘sell’ as it “may well have done well this festive period”.
Nonetheless, the City is well aware of the weak comparatives against last year’s dismal performance.
Posh Joules slumming it
Joules Group PLC (LON:JOUL) sells its wellies to an upscale country crowd but its post-Christmas stocking warning earlier this month sees the shares slumming it at their lowest in four and a half years.
The update, which led to a chunky guidance downgrade, was sparked by a drop in festive online sales due to available stock not matching demand.
Interim numbers on Tuesday, however, are covering the six months to 24 November when Joules had been one of the top performers on Black Friday but should be fairly flat overall, as flagged in December.
Wholesale revenues were hit by last year's deliberate switch of two major accounts, Next Label and John Lewis, from wholesale to retail concession models to provide more "control over brand execution, product assortment and trading flexibility", so now the division is mostly made up by independents.
Dixons Carphone on the right path?
Outside of the clothing side of non-food retail, electronics specialist Dixons Carphone PLC (LON:DC.) is undergoing a reboot as it battles a tough mobile market and looks to reduce its debt mountain.
Net debt swelled 83% to £1.5bn in the six months to 26 October, though losses before tax shrank 80% to £86mln as the retailer said it would cut more debt than expected this year by delaying some IT spending and from negotiating lower rents.
The electrical and telecommunications retailer and services company said the market has been challenging and plans are to break even by 2022, with £90mln losses in 2021.
Analyst Sophie Lund-Yates said the reboot part of Dixons’ “drive to offer an experience not just a shop”, with store remodelling giving more space to ‘experience zones’ and have face-to-face interactions with product specialists.
“The human touch is something its online rivals can’t match, making it important,” she said, hailing an average reduction in rent of 30% a year and the group’s confidence this year will be the trough before a gradual recovery.
Wetherspoons boss looking for targets
Publican JD Wetherspoon PLC (LON:JDW) has pencilled a Wednesday trading update on the blackboard outside, although with the UK due to leave the EU at the end of the month one wonders what chairman Tim Martin will choose to fill the gap left by his traditional Brexit rhetoric.
Shareholders may hope the void is filled by updates on the company’s four-year pub opening plan, unveiled in December.
More likely, with margins under pressure in recent years, Martin will target his moan about the government’s recent minimum wage hike.
In a first-quarter update in November, the company reported that like-for-like sales in the 13 weeks to 27 October had risen 5.3% and total sales by 5.6%, a figure the company will likely hope to have improved on over the important Christmas trading period.
Life on Marston’s
In November the said the new financial year had begun well with pub sales higher in the first seven weeks.
Marston’s said part of its strategy to cut debts was reining its capital growth spending, meaning no new pubs are planned in 2020.
“Our principal focus remains to reduce our net debt by £200mln by 2023 - or earlier - and the measures we are taking now will result in a high-quality business which is cash generative after dividends and capital expenditure,” said chief executive Ralph Findlay.
The market will look for any news on asset disposals, following the sale of 137 of its pubs for £45mln late last year.
Fevertree looks abroad for extra fizz
Sales in its core UK market showed signs of slowing down last year, with annual sales expected to grow just 2%.
On Thursday we will see whether the group has managed to stick to this target, as well as whether its sales to supermarkets and off-licenses have continued to decline amid the ongoing slump in UK retail.
However, Fevertree’s international markets are the key for long-term growth potential, particularly if the company can deliver on its forecasts of 34% growth in the USA, 19% in Europe and 35% in the rest of the world.
Easy does it
A first-quarter statement from easyJet PLC (LON:EZJ) will contain little financial detail but the crumbs are expected to be comforting for investors already pleased by the budget airline’s return to the blue chip list last month.
Capacity growth is predicted to be up 1.8% and passenger growth up 2.0%, said analysts at Peel Hunt, resulting in a slightly improved load factor.
December a year ago was hit by more than 400 flight cancellations at Gatwick due to the mysterious drone, which reduced revenue by £5mln and increased costs by £10mln.
“Against these softer comps and excluding holiday revenue, we expect revenue per seat to rise by 4%, within the guidance range of low to mid single digits,” the analysts said.
Management have guided to increased cost per seat in low single digits, while fuel costs will be under the microscope after recent rises.
There may be some details on the performance of the new Holidays business in its first month of trading, while Peel Hunt was looking to hear about progress in optimising the schedule at Berlin Tegel ahead of the planned transfer to Berlin Brandenberg airport scheduled for October.
Sage eyed for progress on shift to recurring revenues
Fellow FTSE 100 constituent Sage Group PLC (LON:SGE) is dealing with a very different set of challenges as it battles to transition towards more recurring revenues from subscriptions.
The move to a business model with a higher proportion of revenue from software-as-a-service (SaaS) is expected to improve the quality of revenues while also enabling strong returns on investment.
However, the transition contributed to a 13% fall in profits last year, so shareholders will be hoping the pain will have lessened in the first part of the current year, as well as any signs of recovery in margins, which shrank sharply last year to 23.7% from 28.8%.
Significant announcements expected for week ending 24 January:
Monday January 20:
Tuesday January 21:
Economic data: UK unemployment data
Wednesday January 22:
Trading announcements: AJ Bell PLC (LON:AJB), Antofagasta PLC (LON:ANTO), Burberry Group PLC (LON:BRBY), Connect Group PLC (LON:CNCT), Close Brothers Group PLC (LON:CBG), JD Wetherspoon PLC (LON:JDW), Pets at Home Group PLC (LON:PETS), Sage Group PLC (LON:SGE), WH Smith PLC (LON:SMWH)
Economic data: US house prices
Thursday January 23:
Trading announcements: ASOS PLC (LON:ASC), Anglo American plc (LON:AAL), Computacenter plc (LON:CCC), Countryside Properties PLC (LON:CSP), Fevertree Drinks PLC (LON:FEVR), Gear4Music Holdings PLC (LON:G4M), Hyve Group PLC (LON:HYVE), PayPoint PLC (LON:PAY), Strix Group PLC (LON:KETL)
Economic announcements: ECB policy decision, US jobless claims
Friday January 24:
Economic data: UK flash PMIs