High Street giants coping well in tough trading conditions

Published on Wednesday 8 September 2010 18:05

A RAFT of updates from some of Britain's biggest high street names will this week reveal that most are coping well in the face of tough trading conditions.

However, the statements from the likes of B&Q owner Kingfisher, Next and Debenhams are likely to paint a cautionary outlook amid the gathering storm of public sector austerity cuts and tax rises.

Kingfisher, which ranks as Europe's biggest DIY retailer, Comet owner Kesa and retail bellwether John Lewis Partnership, will head the offerings on what has been dubbed "Super Thursday" by retail sector analysts.

Updates are also due from Booker, Britain's biggest cash-and-carry wholesaler, and Dunelm, the housewares retailer, as well as official data on August retail sales.

Department store operator Debenhams, high street stalwart Next and fast-growing youth fashion retailer SuperGroup will set the pace earlier in the week.

While recent results from major names have started to show a pick-up post-recession, the general retailer index has underperformed the broader stock market by about 13 per cent this year.

Many experts are forecasting a challenging winter as sweeping government spending cuts and tax hikes, including value-added tax (VAT) rising to 20 per cent, take their toll on consumer spending.

A recent industry survey showed UK retail sales growth accelerated last month, helped by clothes sales, but discounting played a part in the improvement and consumers remain reluctant to splash out on big-ticket items such as kitchens and large-screen televisions.

Howard Archer, chief UK economist at forecasting group IHS Global Insight, said: "Longer term, retail sales will be hit by VAT rising from 17.5 per cent to 20 per cent in January, although this could bring forward some spending in the final weeks of this year as consumers look to make purchases of more expensive items ahead of the increase."

John Lewis, which last week reported an easing in its recent sales growth and offered up evidence of a north-south spending divide, is expected to report robust half-year figures.

Arden Partners analyst Nick Bubb is forecasting a 31 per cent rise in pre-tax profit to 125 million following a near-20 per cent slide a year earlier.

The City is looking for Kingfisher to report a 19 per cent rise in first-half adjusted profit to 342m. The group, which owns B&Q stores in Britain and Castorama in France, has already posted a drop in first-half underlying sales, but this should be offset by higher profit margins via its drive to buy more goods from cheaper production areas like Asia.

Pre-exceptional profits are also likely to have grown at Next, but much of the attention will be focused on the group's outlook statement. Management are budgeting for like-for-like retail sales to be between 1.5 per cent and 4.5 per cent lower in the second half of the year and a slew of recent broker downgrades on the retail sector as a whole has suggested more high street pain.

Debenhams' bosses are likely to be quizzed over the retailer's recent launch of a 25 per cent off sale when they deliver a pre-close update this Thursday.

The four-day sale fuelled concerns over the consumer outlook, despite the group's assurances it had been planning the move for many months.