The Week Ahead: Updates due from Halfords, Mothercare, easyJet and Majestic Wine
TWO of the UK retail scene’s survivors, Halfords and Mothercare, will reveal their strategies for the Christmas season in updates this week.
First up, however, will be Majestic Wine, whose half-year results are likely to reflect the impact of the washout summer weather when it reports on Monday.
While the group is expected to have seen sales boosted around events such as the Queen’s Diamond Jubilee and Euro football championships, analysts believe overall summer trade will have been hit by the record UK rainfall.
Majestic, which has 181 stores in the UK, toasted a 15% rise in annual profits after sales rose 2.6% in the year to April 2 thanks to strong demand for vintages from Argentina, Italy and Spain.
But it admitted like-for-like sales had slowed to 0.6% in the first 10 weeks of the new financial year - reflecting comparisons with the Royal Wedding in 2011 - and warned the trading environment was likely to continue to be difficult.
Wayne Brown, analyst at Canaccord Genuity, is predicting half-year like-for-like sales growth to have ground to a halt after the weather impact.
He said sales would be “at best” flat, adding that the summer months usually account for around 20% of Majestic’s full-year profits.
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Majestic’s �900,000 national advertising campaign from May to June also came at a bad time, given the wet early summer weather, added Mr Brown.
But he said there was hope for a turnaround by the full-year stage, with the all-important Christmas season still to come.
Canaccord expects adjusted annual profits to rise 14.5% to �23.2 million after a better second half performance.
Profits at easyJet are expected take off on Tuesday after a buoyant year was rounded off by a last minute rush for holidays following the Olympic Games.
The carrier upped its profit guidance in October as London 2012 proved to be far better than feared for the sector.
Ryanair has also upped its full-year profit guidance and said there had been a notable improvement in the market from the end of July and August, which continued into the early part of November.
Luton-based easyJet said Britons delayed their travel plans until after the Olympic Games, while disruption at London airports during the event itself was kept to a minimum as the group told investors that profits were likely to be between �310 million and �320 million in the year to September 30, up from �248 million the previous year.
It also raised guidance in July to between �280 million and �300 million thanks to a strong summer on the back of a well-received advertising campaign and from cheaper fuel.
Numis Securities analysts are pencilling in profits at the top end of the carrier’s range. They said the launch of allocated seating across flights should also support profits in future years, possibly adding around 10% to earnings. But they warned that easyJet faces significant “cost headwinds” in the new financial year.
The airline admitted that fuel costs were set to rise by between �30 million and �40 million, on top of the �230 million seen in the year to September 30.
Airport costs are also expected to increase by around �80 million, reflecting significantly above inflation rises in charges at regulated airports in Spain and Italy.
Interim figures from Homeserve on Tuesday come after a difficult six months for the home repair and insurance business after it revealed it was the subject of a mis-selling probe.
The Walsall-based group said in May that the Financial Services Authority (FSA) was investigating the group over accusations of alleged mis-selling of household emergency policies and failures in complaints handling.
Around �200 million was wiped from its stock market value in one day after the announcement.
Homeserve, which has 2.7 million customers with 6.7 million policies insuring against and repairing burst pipes, broken down boilers and electrical problems, has been downsizing and overhauling its UK operation in an effort to bounce back from the crisis.
In September, it said customer complaint levels had started to fall after making changes required by the FSA.
But Homeserve, which suspended call centre operations last October when the issue first came to light, admitted that the costs of improved governance and controls were expected to leave UK operating profits flat at around �25.8 million in the six months to September 30.
It also remains under investigation in a probe that could last “well into 2013”, according to UBS analysts.
The broker is forecasting a rise in Homeserve’s group-wide adjusted pre-tax profits in the first half, to �24.3 million from �23.5 million.
Homeserve said in September that it was expecting profits to rise thanks to the benefits of wholly owning its French business Domeo.
The group also operates in Spain and the US and is expanding its footprint across Italy and Germany.
The second half is seasonally stronger for Homeserve, given timings for policy sales and renewals in the winter months.
Homeserve shares have plunged by around 17% over the past year, despite recent gains amid bid speculation surrounding the firm.
The company was quick to deny the rumours after a report suggested buyout groups had been circling Homeserve and were prepared to pay up to �1 billion.
Halfords will insist the so-called “Wiggins effect” is keeping the business on track on Wednesday when it unveils a slide in half-year profits.
The chain previously said it expects pre-tax profits for the 26 weeks to September 30 to be �40 million to �42 million, down around 20% on the same period last year.
But the profits are still above what City analysts had expected earlier this year when the company, which has 467 stores, was struggling under falling sales.
Thanks to the Olympics, the retailer saw retail sales bounce back to 4.6% growth in the second quarter of the year, following a 7.5% plunge in the first quarter.
The rebound was driven by a 14.7% surge in cycling sales, which the business put down to better weather and British success in the Tour de France and Olympics from the likes of Bradley Wiggins, Sir Chris Hoy and Lizzie Armitstead.
Brands like Boardman and Pendleton, named after British Olympic gold medallists Chris and Victoria respectively, have proven popular in the wake of the event.
Kate Calvert, retail research analyst at Seymour Pierce, said: “We believe a back-to-basics approach is needed to restore profitability. We do not believe Halfords is suffering from structural issues, it is suffering from maturity, a tired offer and operational inefficiencies.”
The results will be the first since new chief executive, former Pets At Home boss Matt Davies, joined although he is not expected to present them.
Mr Davies replaced David Wild who quit in July following a profit warning and a sharp sales decline.
Elsewhere, the City will be keen to see if Halfords Autocentres, which provides MoT and car servicing, continued its strong run in current trading.
The division saw a 12.4% rise in sales in the second quarter, compared to a 9.2% increase in the first three months.
This was the strongest like-for-like performance since the chain was acquired in February 2010 and was driven by better-than-expected take-up of its tyre services.
Mothercare investors will find out on Thursday if the loss-making parenting retailer has weathered the recent squeeze in consumer spending.
Experts predict half-year losses at the group will narrow to �3 million after its Jools Oliver and value ranges helped it return to sales growth.
Boss Simon Calver joined Mothercare in April amid a dismal �103 million loss pledging to be ruthless on costs.
The City will hear how plans to cut store numbers from 311 to 200 by 2015 in a bid to save �13 million a year are going. The new UK estate will comprise 95 out-of-town sites and 105 high street locations.
Mothercare’s will report to the City after ONS figures showed sales volumes in October were worse than expected, dropping 0.8%. Inflation was also on the rise last month amid higher food bills and a near trebling of tuition fees.
But Adam Cochrane, analyst at UBS, said he expected Mothercare to have a “solid” first half year and was more optimistic about its long term prospects as it improved sales and cut costs.
In April a �55 million writedown on the value of the group’s Early Learning Centre business and nearly �10 million in UK restructuring costs triggered a bottom-line pre-tax loss of �102.9 million, compared with an �8.8 million profit in the previous year.