The Week Ahead: Updates due from Morrisons, Next and Kingfisher

Morrisons is due to report interim results on Thursday this week.

Morrisons is due to report interim results on Thursday this week. - Credit: Archant

Winners and losers in the retail sector will be highlighted this week when the City gets figures from major players including Next, Morrisons and B&Q.

Supermarket Morrisons is likely to follow Tesco’s lead and slash its dividend, leaving shareholders to count the cost of the industry’s price war.

Tesco and Morrisons have been the major casualties in the recent shake-up of the sector, with the latter’s like-for-like sales likely to be down by a hefty 6.9% when it reports half-year results on Thursday.

Pre-tax profits are forecast to be down by around 50% to £174million, while brokers think the grocer’s dividend will be cut in half to 6.5p over the year.

Speculation about a dividend cut at Morrisons intensified after Tesco announced it would cut its half-year payout by 75% in a move saving an initial£280m.

Morrisons and Tesco have seen the heaviest sales falls among the big four supermarkets, as the sector has been squeezed by discounters such as Aldl and Lidl.

Back in March Morrisons chief executive Dalton Philips launched a £1bn investment in price cuts over the next three years and the company followed this up in May with an “I’m Cheaper” campaign, which cut prices across 1,200 products by an average of 17%.

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However, the benefits of these moves are yet to feed through to the grocer’s trading. Analysts at Deutsche Bank said Morrisons was currently the biggest market share loser among the big four due to its underdeveloped online and convenience stores, which are both growing sectors.

The broker added that Morrisons shared many of the same customers as Adsa and the discounters, who are all gaining market share.

It plunged to an annual loss of £176m for the year to February 2 and recently announced it was slashing 2,600 jobs as part of a drive to modernise the way its stores are managed. Mr Philips was also subjected to a humiliating dressing down at the firm’s AGM from former boss Sir Ken Morrison.

Fashion retailer Next is expected to extend its lead over rival Marks & Spencer when it posts a strong set of half-year results next Thursday.

The group said in July it expects sales for the first six months of the financial year to jump 10.7%, compared to a year ago. It said its better-than-expected revenues were driven by its Next Directory and increased store sales.

Next overtook its more-established rival M&S with a £695m profits haul earlier this year and said it was now on course to lift this to between £775m and £815m in the current financial year, with analysts expecting M&S to make £663m in 2014/2015.

Analyst Freddie George at Cantor Fitzgerald said Next has carefully managed its inventory so far this year. He said: “The company went into the ‘summer sale’ with less stock so operating margins are now expected to be up on the previous year.”

Retail sales rose 7.5%, although this increase was slower in the second quarter than the first. The group’s catalogue and online division boosted revenues by 16.2%, including a stronger second quarter.

The company said sales were ahead of its 5.5% to 9.5% full-year guidance and that it was raising this range to 7% to 10%.

Next said the guidance “might appear overly cautious” but pointed out that the first-half performance compared with a period last year when sales were hampered by a very cold spring and Easter weather.

In June Next was hit with the resignation of long-serving executive Christos Angelides who leaves in November. The product director, who played a key role during three decades with the firm, will leave to join US retailer Abercrombie & Fitch.

But investors are pretty relaxed about this key change with brokers at Numis pointing out the group has a tradition of promoting experienced managers from within.

The City expects profit at the owner of B&Q and Screwfix to fall at its half-year results next Wednesday, with the group seemingly unable to take full advantage of the housing market recovery.

Kingfisher, which trades in nine countries in Europe and Asia, is expected to post an adjusted profit before tax down 5% at £348 million compared to a year ago due to softer sales in France and Poland.

Added to this the group said recently that revenues at B&Q in the UK were down by 3.2% on a like-for-like basis in the 10 weeks to July 12 as sales of outdoor and seasonal products slumped 8% on a year ago.

Brokers at Jefferies said: “At a time when market conditions are increasingly supportive to the overall UK industry, B&Q’s inability to surf this rising tide continues to frustrate.”

Analysts at Deutsche Bank add that they hope the B&Q team updates investors on the revamp of its stores, the firm’s online plans, and its cost cutting strategy.

Jefferies analysts agree, adding: “The interims could well be a good opportunity for B&Q’s leadership to set out its vision.”

Kingfisher is the world’s third largest home improvement chain, with 1,134 stores. Its main retail brands are B&Q and Screwfix in the UK and Ireland and Castorama and Brico Depot in France.

In April the group revealed that despite the weak economy in France it was in talks over a 275m euro (£227m) deal to buy French rival Mr Bricolage.