The Week Ahead: Updates due from Whitbread, Debenhams and Majestic Wine
- Credit: Vismedia
Leisure group Whitbread is expected to continue its record of strong growth this week but retailers Debenhams and Majestic Wine will be under pressure to deliver better news after recent profit warnings.
Britain’s burgeoning coffee shop culture will continue to benefit Costa owner Whitbread when it reports a solid first quarter trading update on Tuesday.
Brokers at Morgan Stanley forecast that Costa will grow like-for-like sales by 3%, alongside 8.5% like-for-like growth at Whitbread’s Premier Inn budget hotels and a 3.5% rise at its Beefeater and Brewers Fayre pubs and restaurants.
Overall growth of 5.5% will be slower than the previous quarter’s 7.2% but in line with trends seen over the last year.
Costa, which has 1,755 UK stores and is a strong driver of the group, is set for a slowdown on the previous quarter’s 7.3% gain but this is due to tougher comparatives from last year, when sales benefited from unusually cold weather.
Brokers expect Whitbread, which employs 43,000 staff and serves 22million customers a month, to continue to benefit from the recovering UK economy with consumers more willing to spend on leisure products and services. Analysts at Barclays said “Whitbread is an excellent investment for the UK marcro economic recovery theme.”
This particularly applies to the hotel market, with industry figures pointing to strong trading in both London hotels and the regions during March and April.
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In April 2011, the company pledged to grow the number of Premier Inn rooms in the UK by around 50% to 65,000 by 2016. It extended the target in April to 75,000 by 2018, with a further 4,500 rooms in the current financial year.
In April, Whitbread reported a better-than-expected 16.5% surge in annual underlying pre-tax profits to £411.8m, on revenues of £2.29billion.
When the group reported its annual results chief executive Andy Harrison, said the first two months of the new financial year had started positively, but warned that comparatives will become tougher in the second half of the year.
Debenhams has much to do to win over investors after a disastrous Christmas trading performance led to a sharp fall in half-year profits.
The department store chain, which has 172 outlets in the UK, Ireland and Denmark, issues a trading update on Friday, when the focus will be on its recent pledge to sharpen up its promotional strategy.
The moves, outlined by chief executive Michael Sharp, follow a period in which profits fell 24.5% to £85.2mn in the 26 weeks to March 1. The new strategy will see more clearly defined promotional periods in the trading calendar, with fewer days on promotion.
Numis Securities said the changes resulted in a later than usual start to the summer and meant third quarter like-for-like sales will be difficult to predict. However it is braced for a decline of around 2% on a year earlier.
There will also be attention on a possible tie-up with Sport Direct International in a move that could see the chain sell brands such as Dunlop, Kangol and Slazenger in concessions at some of Debenhams’ 158 UK outlets.
The idea of a tie-up came about in January when Sports Direct, controlled by Newcastle United FC owner Mike Ashley, bought and sold a 4.6% stake in Debenhams worth around £46m within a few days.
This was replaced by a complex financial arrangement giving Sports Direct the option to buy 6.6% of the department chain at a later date. The two firms have since held talks to explore options on how to work together.
Debenhams is also working to improve its online service in time for Christmas, by offering next-day click and collect and a 10pm cut-off for next-day delivery. This has required a step-up in spending on automation at its distribution centres, which analysts fear will be another drag on earnings.
Majestic Wine is expected to reveal flat annual results tomorrow after the retailer issued a surprise profits warning earlier in the year.
The market predict the firm will turn in a pre-tax profit of £23.6m on sales of £280.6m, which comes after it issued a March trading statement where it said sales and profit would be “broadly in line with the previous financial year.”
The firm, which has 193 stores, said that although like-for-like sales rose 2.8% over the 10-week Christmas period, it has experienced challenging trading conditions since the start of the 2014 calendar year.
The business added that it also expects flatter profits growth in 2015 because it plans to invest in larger offices, a warehouse and its website. The firm, which was launched in Wood Green north London in 1980, also believes it can expand to 300 stores, though it has not given a time frame.
At the March profits warning chief executive Steve Lewis admitted the group was “disappointed” by the firm’s performance, but denied that it was being dragged into the crisis affecting the major supermarket chains.
Rather than trading down, consumers are instead “buying slightly less wine, but better wine”, Mr Lewis said.
Brokers at Panmure Gordon are inclined to believe him. They called the March warning “a blip” and said the range of investment the company is making would keep up the firm’s long-term growth characteristics.