The Week Ahead: Updates due from Marks & Spencer, Sainsbury’s, Halfords and SuperGroup

Justin King, who stands down as chief executive at Sainsbury's this week.

Justin King, who stands down as chief executive at Sainsbury's this week. - Credit: Archant

Two significant AGMs take place this week, with Justin King stepping aside as chief executive at Sainsbury’s and Marc Bolland attempting to reassure Marks & Spencer shareholders

The run of lacklustre figures at Marks & Spencer is set to continue when it reports first quarter trading in advance of its annual meeting on Tuesday.

M&S’s much troubled general merchandise and clothing division saw underlying sales fall in the last financial year and consensus in the City points to a similar figure over the last few weeks, down 1.5% compared with a year earlier.

The retailer’s food division has fared much better and is expected to show growth of around 2%, aided by the roll-out of its Simply Food stores and a defiant performance in the face of supermarket price wars.

In May, the business posted a 4% fall in annual underlying profits in the year to March to £623million, meaning three consecutive years of falling profits.

Chief executive Marc Bolland said the poor results would mean he and his senior directors and the firm’s 82,000 staff would not receive a bonus.

Mr Bolland’s annual earnings fell by 26% to £1.59m year-on-year because he failed to hit targets, the firm’s annual report revealed recently.

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The former Morrisons boss has come under pressure as M&S has faltered despite a £2.3billion investment drive, the hiring of new fashion executives and numerous celebrity-driven marketing pushes.

The heart of the poor performance at the general merchandise division is clothing, and particularly ladieswear, which is a key part of the group’s sales.

Shore Capital analyst Clive Black said this failure is a “legacy of many years of poor ranges.”

He added that, despite numerous senior management changes, another of which came this week, the business was still struggling to compete with rivals such as Next and John Lewis.

When Sainsbury’s chief executive Justin King makes his last report at the firm’s annual general meeting in London on Wednesday those present at the meeting will have much to thank him for.

When he took over in 2004 sales at the supermarket were sliding, shareholders were in revolt, and the chain that was once number one was smaller than Tesco and Asda. The business may still be smaller than Tesco, but Sainsbury’s has enjoyed nine years of unbroken sales growth.

During the last two quarters, the business has suffered like-for-like declines of 2.4% and 1.1%, as the country’s largest supermarkets have seen their market shares attacked by discounters such as Poundland, Aldi and Lidl. But even then Sainsbury’s experienced drops in sales and market share that were less severe than those endured by Tesco and Morrisons.

During his time at the business Mr King boosted the chain’s convenience stores, as bigger out-of-town hypermarkets became less popular.

He also expanded the firm’s clothing Tu brand, grew online sales, and kept the business focused on the UK, avoiding the costly foreign start-ups which blighted Tesco in the United States and Japan.

Sainsbury’s said that under Mr King’s 10-year reign, sales have risen by a total of £9.5bn, with underlying profits up from £254m in 2004-05 to £756m in 2012-13.

Analysts expect Mr King’s successor, commercial director Mike Coupe, to face a tougher market distinguished by tighter household budgets and a willingness for more affluent customers to trade down for part of their weekly basket. He will also have to contend with an increasing shift to online sales and a decline in hypermarket popularity.

Shore Capital expects Sainsbury’s full-year pre-tax profit for next year to slip 0.4% to £795m.

Car parts and bike firm Halfords is expected to get the second year of its three-year turnaround plan off to a strong start when it reports its first quarter trading on Thursday.

The retailer, which has 465 Halfords stores and 303 Autocentres garages, beat expectations in May with annual pre-tax profits up 1.1% to £72.8m. Analysts at Investec forecast the “strong momentum” from the end of last year will continue into the first three months of 2014-15.

The company expects to benefit from what it calls a “summer of cycling”, which includes the start of the Tour de France in Leeds and the Commonwealth Games in Glasgow.

Halfords has developed a strong cycle business on the back of the success of British sporting heroes such as Sir Chris Hoy, Sir Bradley Wiggins and Victoria Pendleton.

Investec says it expects the firm’s first quarter sales to benefit from better weather, the partial contribution of Easter sales and an improvement to its bike range.

Last month the retailer bought out the bike business of former Olympic champion Chris Boardman, who has designed cycles for Halfords since 2007, for an undisclosed sum.

Investec predicts that Halfords like-for-like sales will lift 7% and also expects Autocentre, where new managing director Andy Randall joined to boost the unit in March, will post a like-for-like sales rise of 3%.

The business is in the middle of a three-year investment programme that will see it spend £100m by the end of 2016 upgrading many of its stores and garages.

The business spent £30.4m last year on capital investment, which included refitting 23 Halfords stores and upgrading equipment at Autocentres. The group plans to refit another 50 Halfords shops this financial year.

Investec forecasts the business will post an annual pre-tax profit up 4% to £75.8m in 2015.

Superdry owner SuperGroup will have to reassure the market about its plans for growth when it reports its full-year results on Thursday after warning on profits two months ago.

The fashion retailer, which has 500 stores worldwide, said on May 22 its full-year profits would be at the lower end of its previously indicated £61.1m to £65.2m range.

This moved the firm’s annual market consensus to £61.7m, from £63.1m, and has left its shares 18% lower as critics begin to wonder if this once darling of the stock market has lost its appeal.

But brokers at Cantor Fitzgerald said they believed the stock had been oversold and added that the retailer has been busy revamping its classic range of T-shirts and hoodie tops. Analyst Freddie George said: “The brand, in our view, remains in ‘vogue’.”

The business bought back its Scandinavian distributor last month, which follows a similar deal with its German and Spanish concessions last year, giving SuperGroup greater control over its international expansion.

Brokers at Investec expect 2015 “to be a European roll-out story” and think the retailer will open more than the 100,000 square feet of new retail space it told investors it will open this year.