The Week Ahead: Updates due from Tesco, Sainsbury, Halfords, Marston’s and Wolseley
SUPERMARKET rivals Tesco and Sainsbury’s will go head-to-head in the City this week, having experienced contrasting fortunes in recent months.
The battle to turnaround Tesco’s UK performance will be back in the spotlight on Wednesday when the supermarket behemoth reports a slide in half-year profits.
Tesco is forecast by brokers Shore Capital to report pre-tax profits of �1.5 billion for the six months to August 25, a drop of 12% on the same half last year.
The UK’s biggest retailer issued its first profit warning in 20 years in January and most recently reported a 1.5% fall in underlying sales in the 13 weeks to May 26, although this did not include the period around the Queen’s Diamond Jubilee.
Despite its latest quarterly sales decline, Tesco said its �1 billion turnaround, which has seen it revamp 100 stores and recruit 4,300 extra staff, is beginning to gain traction as it competes more convincingly with rivals.
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Shares have recovered about 14% since June but are still 15% lower than they were at the start of the year after plunging in the wake of the profits warning.
Shore Capital analyst Clive Black underlined the importance of turning around the UK business.
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He said: “If Tesco does not stabilise the performance of the core chain and position the business for future growth, albeit at a more sedate pace than historical underlying growth rates, then what it delivers internationally and in retail services will be of secondary interest and we will struggle to recommend the stock positively.”
Group chief executive Philip Clarke has assumed leadership of the UK arm and pulled in marketing and food experts from Tesco’s global businesses to oversee the turnaround.
The group has been testing initiatives in a handful of stores across the UK such as reducing space set aside for non-food, boosting the space dedicated for food, ditching the “Tesco Value” label and bringing in nearly 2,000 new products.
The group also plans to expand its online grocer capacity with more so-called “dark stores” - effectively stores without customers that fulfil grocery orders placed online.
Tesco is likely to come under further pressure over its troubled US chain - Fresh & Easy - as it continues to report losses and moves to cut costs.
But Mr Clarke reportedly stood by the venture in a speech at the World Retail Congress and insisted there was a future for the business.
Sainsbury’s will endeavour to keep up the pressure on Tesco when it posts a sales update for the second quarter of its financial year on the same day.
The UK’s third biggest supermarket chain, which operates more than 1,000 stores, saw underlying sales rise 1.4% in the first quarter as the Queen’s Diamond Jubilee boosted demand for party food and bunting.
Sales are likely to remain hard to come by in the subsequent 12 weeks, primarily due to the mixed weather and the consumer climate, though some food retailers reported a boost to party foods during the Olympics.
Shore Capital expects sales growth of 1.5% with volumes likely to be flat or slightly lower.
In May, Sainsbury’s signalled an end to the supermarket “space race” when it revealed it would scale back expansion this year.
Sainsbury’s added 19 new supermarkets, 73 convenience stores and 28 store extensions during the year to the end of March but now intends to slow growth to around one million sq ft, compared with 1.4 million sq ft in the last year.
Panmure Gordon stockbrokers retail analyst Philip Dorgan said that following significant expansion, food retailers were now focused on improving their balance sheets and returns for shareholders.
He added that short-term trading trends were becoming less significant to investors as attention turns to the need for strategic change in the sector.
Mr Dorgan said: “The space race is over and operators need to focus investment online.”
Pedigree and Hobgoblin brewer Marston’s will reveal if the Olympics and mixed weather derailed its “F-plan” to focus on “food, families, females and forty/fifty-somethings” in a trading update on Thursday.
The Pitcher & Piano and Tavern Table firm has already reported a 2.2% rise in like-for-like sales in the first 42 weeks of the year at its managed pubs and analysts at brokers Numis Securities expect the full-year update to be in line with this performance.
The Wolverhampton-based group, which employs 12,000 people and has an estate of 2,150 pubs, is expected to say the Olympics and mixed weather throughout the summer affected trade.
Douglas Jack, an analyst at Numis, predicts pre-tax profits for the full year to September 29, which will be reported in November, will come in at �87 million, up from the �80.4 million reported last year.
He said: “We do not expect much change in underlying trading. The Olympics and mixed weather are likely to have been more detrimental than helpful to trading.”
The group, which has around 1,650 tenanted or leased pubs and around 500 managed pubs, wants to open 25 new-build pub-restaurants in the current financial year and it plans to open a further 20 to 25 each year thereafter.
It also has its Pedigree brewing division, which is forecast to post a 2% rise in volumes for the first 42 weeks.
Retail chain Halfords updates on trading on Thursday after a torrid half-year that saw its chief executive step down amid news of a profit warning and a sharp sales decline.
David Wild quit immediately in July after like-for-like retail sales dropped 7.5% in the 13 weeks to June 29 as record rainfall impacted sales of cycles and outdoor goods.
The group said it expected sales to be flat at best in the second half of its financial year - leading it to slash profit guidance from around �79 million to between �62 million and �70 million.
Halfords, which has 467 stores in the UK and Ireland, said retail sales plunged as much as 12.4% in the first eight weeks following the dismal early summer weather, although it said sales recovered to rise by 0.9% in the last five weeks of the quarter.
Seymour Pierce analysts believe the ‘Wiggins effect’ will help return cycling sales to growth in the second quarter- following a 9.6% slide in the first quarter, after Bradley Wiggins added Olympic gold to his Tour de France win.
They also expect car maintenance sales to have turned around, although car enhancement trade has further to fall, they added.
Jonathan Pritchard, analyst at Oriel Securities, expects Halfords to have narrowed retail sales declines to a drop of 4% in the second quarter, but is forecasting a return to growth by the turn of the financial year.
With Halfords having reported 10 consecutive quarters of like-for-like sales declines, the market is no doubt hopeful a change at the top will help reverse the group’s fortunes.
Gambling firm Sportingbet will see its full-year results overshadowed on Wednesday by interest in talks with Britain’s biggest bookmaker William Hill about a takeover.
Sportingbet is forecast by Edison Research to report profits of �34.5 million, down �3 million on a year earlier but with expectations that the performance will improve in the current year on the back of strong Australian trading.
However, analysts will be looking to gauge the company’s response to news that William Hill, which has around 2,300 betting shops and accounts for about a quarter of the market, is considering bidding for the firm in conjunction with European gaming company GVC.
Sportingbet, which was previously a bid target for bookmaker Ladbrokes, has seen its shares surge around 16% since speculation over the talks was confirmed.
It is currently envisaged that any possible offer would be structured so that William Hill would acquire the Australian and certain other locally licensed businesses of Sportingbet and GVC would acquire the remaining parts of the business.
William Hill and GVC must make a firm intention to make an offer by October 16 but added that there was no certainty that any offer will be made.
Guernsey-based Sportingbet was founded in 1997 and has more than 2.5 million registered customers in 200 countries, who place more than one million bets per day.
Building supplies firm Wolseley will reveal the extent of its trading woes in France and across the embattled eurozone when it reports full-year figures on Tuesday.
The group said it was putting its French business under review in July amid dire trading conditions.
Its French arm - one of its biggest trading regions, employing more than 5,000 staff - saw underlying revenues in France decline by 6.1% and quarterly profits fall by �6 million as new construction markets weakened and government stimulus activity came to an end.
An exit from France would allow Wolseley to focus on its North American operations and revitalising the UK business.
Analysts are expecting annual figures to show trading profits from the ongoing business in France dropped to �33 million from �46 million a year earlier.
The UK is also set to see a fall in profits, to �95 million from �109 million, according to analysts.
Wolseley has already admitted its full-year figures will reveal a hit to overall trading profits from a writedown on the French business.
Analysts are expecting trading profits of �662 million, up from �622 million, although this does not factor in the French impairment charge.
But despite the wider European troubles, good growth in north America has been helping shore up figures, with a 9.4% hike in US like-for-like sales in the the third quarter.
The UK also saw revenues growth, up 1.9% on an underlying basis in the quarter due to better performances at Plumb Center and Parts Center.
It no longer has any consumer-facing businesses in the UK after selling the 160-strong retail chain Bathstore in May for �15 million to turnaround investor Endless.