The Week Ahead: Updates due from Halfords, Kingfisher, Mothercare and Sports Direct

THE retail sector’s battle against the weather and economic conditions will be in sharp focus this week, with Halfords, B&Q-owner Kingfisher and Mothercare among those due to post figures.

The pressure on Halfords to get its performance back on track will intensify on Thursday after the dire weather hit sales of bikes and other leisure products.

The group, which has 467 stores in the UK and Ireland, has seen its share price almost halve over the past year as high petrol prices cause motorists to use their cars less, hitting demand for car maintenance products.

Halfords has already admitted it made a “very disappointing” start to its first quarter and the City expects like-for-like sales to fall 6.8% in the three months to the end of June.

Bicycle sales have provided a ray of hope over the past year, although the wettest April and June on record has offset the positive effect of Bradley Wiggins’ yellow jersey success in the Tour de France and hopes for a strong performance by Team GB at the Olympics.

The wet weather has also hit other goods in Halfords’ leisure category, such as tents and camping equipment, meaning leisure sales are expected to fall 11% in a sharp slowdown on the 5% growth in the previous 12 months.

Meanwhile, car enhancement products, such as sat-navs and car stereos, are predicted to be down 16% as shoppers continue to cut back on luxury items.

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The one bright spot in its retail division will be car maintenance products, such as windscreen wipers, which are set to have been boosted by the weather.

Panmure Gordon analyst Philip Dorgan said: “Halfords first-quarter trading statement will disappoint, it is only a question of degree.”

The update is expect to come as a blow to Halfords’ recently announced plans to evolve from traditional retailer into “Friend of the Motorist, the Best Cycle Shop in Town and Starting Point for Great Getaways”. It plans to create 1,000 jobs and invest in more fitting resources and its online offer.

DIY chain B&Q is expected to reveal the impact of Britain’s wash-out summer weather when parent firm Kingfisher updates on trading on Thursday.

B&Q was hit hard by the wet weather over Easter as homeowners put DIY and gardening projects on hold, posting a 12% slide in sales due to poor demand for outdoor products and building materials.

Given that the weather has remained dismal since April, Thursday’s update is set to confirm tough trading in the second quarter.

Its rival Homebase, owned by Home Retail Group, suffered a 8.3% slump in sales during the three months to June 2 and the group said the wet weather was responsible for 80% of the sales declines.

B&Q, which has 359 stores in the UK and Ireland, saw sales drop to �968 million in the 13 weeks to April 28, while profits declined 14% to �65 million.

The group has been leading cost cutting initiatives and driving sales of showroom products such as kitchens and bathrooms in an effort to help boost trade, although this was not enough to offset the wettest April on record.

Matthew Taylor, an analyst at Numis Securities, said Kingfisher, which also owns Screwfix in the UK and Castorama in France, may have been helped by weaker comparatives from a year earlier.

But he added: “Nevertheless, with the wet weather continuing through the second quarter, we anticipate trading will have remained tough.”

He is forecasting like-for-like sales to rise by 1% at each of Kingfisher’s major divisions.

Panmure Gordon analyst Philip Dorgan predicts the wet weather in Kingfisher’s first half will leave interim profits down 4.8% to �417 million.

“Around 40% of B&Q’s sales in the quarter relate to outdoor activities, seasonal, painting the house, etc, and this will obviously have taken a big hit,” he said.

Pay and performance will top the agenda when Mothercare faces investors on Thursday after a dire past financial year.

The babycare retailer, which also owns the Early Learning Centre, slumped to a �103 million loss and saw UK like-for-like sales tumble 6.2% in the year to March 31.

There are also concerns surrounding the group’s executive pay plans after shareholder body Pirc flagged up “highly excessive” long-term bonus awards made to executive directors.

Pirc is recommending investors vote against the remuneration report at Mothercare’s shareholder meeting in Hertfordshire after discovering that some directors received between 213% and 373% of basic salary under a long-term share incentive plan.

An update on trading is also due on Thursday and will likely be scoured for signs of progress under new boss Simon Calver’s turnaround plan.

Mr Calver, who joined at the end of April, announced aims to slash costs under a three-year recovery plan unveiled in May alongside the dismal full year figures.

He plans to cut UK store numbers from 311 to 200 by 2015 in a bid to save �13 million a year, but admitted it would take three years to get the UK arm back to “acceptable levels of profitability”.

Sales in its first quarter are unlikely to see any major improvement, given the awful summer weather and tough conditions on the high street - highlighted by Marks & Spencer’s recent figures showing its worst non-food sales performance for more than three years.

The British Retail Consortium (BRC) said earlier this week that the wettest June on record kept shoppers at home.

Like-for-like sales rose 1.4% in June - even with the boost of the Diamond Jubilee at the start of the month, according to the BRC.

But Mothercare may reveal further growth in its international operations, where sales have been resilient - up 18% to �672.4 million in the year to March 31. It is forecasting overseas sales growth of 20% this financial year.

The group may also provide an update on internet business after Mothercare launched its new UK website on May 1.

Oriel Securities analysts have faith in Mr Calver’s plans. They said in a recent note: “A strong new team appears well capable of stemming Mothercare’s UK losses whilst injecting some much needed vigour into its internet operations.”

Sports Direct International is set to inflict more pain on rival JJB Sports on Thursday when it reveals buoyant trading in the run-up to the Olympics.

The group, which has nearly 400 stores and owns brands including Slazenger, Donnay and Karrimor, is thought to have grabbed a bigger share of its market with the help of an aggressive promotional campaign.

It stocks an array of Team GB sportswear such as football and basketball tops, including official pieces of blue and white kit emblazoned with a Union Jack designed by Stella McCartney and which are expected to have sold well.

Its figures will be in contrast to rival JJB, which recently issued a profits warning after saying it had failed to gain the boost it expected from the Euro 2012 championships.

Oriel Securities analyst Jonathan Pritchard said: “JJB’s recent profit warning may be more of a reflection on Sports Direct’s aggression on price than on the underlying conditions.”

He expects the Sports’ figures to provide further evidence of “sales-led profits growth of the highest order”.

The City predicts Sports’ underlying earnings will rise 15.5% to �231 million in the year to April, on revenues up 10% to �1.8 billion.

The strong performance would mean the chain has hit an earnings target of �225 million for the year, putting executive chairman and Newcastle United owner Mike Ashley on track to receive eight million shares - currently worth around �24 million.

To qualify for the ‘super-stretch’ targets, the company’s earnings would need to rise by 70% over four years to �340 million in 2015.

Sports also runs an employee share scheme that is currently due to give 2,000 staff an average of 5,000 shares, worth �15,000, this summer and a further 12,000 shares the following year.

The bonus, which relates to 2010 and 2011, has been one of the factors behind recent strong trading at the retailer.

Away from retailing, Howden Joinery, which sells 400,000 kitchens a year through the building trade, will weather the stormy economic climate with a robust set of half-year results on Thursday.

The company, which makes a third of its products at factories in Runcorn, Cheshire and Howden, East Yorkshire, is forecast by brokers at Numis Securities to report pre-tax profits for the six months to the end of June of �25.9 million, compared with �23.5 million last year.

The group, which trades from 510 depots in the UK, had a strong start to the year as it saw total revenues increase by a steady 6% in the first quarter, with a like-for-like sales increase of 4%.

Howard Seymour, an analyst at Numis, said he did not expect total sales growth to have been maintained but added he did expect Howden to “continue to show relatively good level of sales growth”.

Howden is also benefiting from its major competitor Magnet losing market share, he said.

The City will look for an update on the group’s ambitious expansion plans to open around 20 new depots this year after it opened a single depot in the first quarter. The impact, if any, of the dire weather in the April to June period will also be in focus.

In its last update, the board said it was pleased with the company’s performance in the year to date but remained cautious about the outlook for the rest of the year, given the prevailing economic environment.

As Galiform, the group was the former owner of flat-pack furniture firm MFI but it sold the business - which has since folded - to private equity in October 2006.

Inflation figures on Tuesday are expected to show that the squeeze on consumer spending continued to loosen its grip in June.

The consumer price index (CPI) measure of inflation is forecast by brokers Investec to dip to 2.7% in June from 2.8% in May, as fuel and food prices continue to ease.

Last month, a sharp drop in commodity and oil prices paved the way for the smallest rise in fuel prices since October 2009, dragging down the headline inflation rate.

Inflation has fallen from 5.2% last September due to the waning impact of the VAT hike at the start of 2011, falling energy, food and commodity prices and a number of bill cuts from utility providers in February.

Victoria Cadman, economist at Investec, said inflation should continue to moderate beyond June, which will be welcomed by the Bank of England’s Monetary Policy Committee (MPC) after it recently injected a further �50 billion into its quantitative easing programme.

She said: “With the MPC having just eased policy in an effort to get the UK economy off its knees, this would be welcome news and particularly so if the committee is later forced to consider further easing still.”

The economy entered a technical recession in the first quarter of the year as gross domestic product declined 0.2%, following a 0.3% drop in the final quarter of 2011.

The weaker growth has started to weigh on prices as retailers sacrifice profit margins in a bid to draw in cash-strapped consumers.

The British Retail Consortium (BRC) Shop Price Index fell to 1.1% in June, from 1.5% in May, as the falling cost of crude oil and raw materials filtered through to store prices.

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