Market watch: City eyes on Kingfisher as retail stays in spotlight

Published on Friday 15 July 2011 12:31

THE plight of the retail sector will remain in the spotlight this week with the release of official sales figures and an update from B&Q-owner Kingfisher.

B&Q increased sales by 1.5 per cent to 1.1 billion in the three months to 30 April, but brokers expect Thursday's second-quarter trading update to show sales have fallen by as much as 5 per cent on a like-for-like basis since then.

Chief executive Ian Cheshire suggested the warm weather and early spring may have brought forward some outdoor sales and that he expected the rest of the year to be tough, especially in the UK.

Analysts at Deutsche Bank also suggest that the effect of Focus DIY's closing-down sale pulling customers away could account for as much as 3 per cent of any decline.

Deutsche Bank estimates Kingfisher's full-year profits for the year to January 2012 will hit 780m, up from 670m.

Howden Joinery has been a resilient performer in the face of the tight squeeze on household disposable incomes.

The kitchens and doors group reported that sales rose by 7.8 per cent in the first 16 weeks of 2011 and by 5.2 per cent on a same depot basis.

Howden is a trade-only supplier. Andrew Nussey, at broker Peel Hunt, says that, over the past four years, this model has seen Howden grow underlying profits by 23 per cent and establish market leadership with a 20 per cent share, despite the kitchen market overall declining by around 15 per cent.

After a strong start to the year, sales growth slowed a touch in March and April and Thursday's interim results will be keenly watched to see if that slowing trend has continued.

Nussey expects full-year sales of 855m and underlying pre-tax profits of 107m, up from 101m in 2010.

More evidence about the strength - or weakness - of the UK's economic recovery will be revealed when official figures for retail sales are released.

Retail sales volumes returned to modest growth in June as retailers started their summer sales early, figures released on Thursday are expected to show. But the increase will not be enough to make up for the 1.4 per cent decline in the previous month.The early discounting comes as companies such as TJ Hughes and Jane Norman have entered administration while mother and child retailer Mothercare, entertainment group HMV and chocolatier Thorntons have all announced plans for store closures.

Mobile phone giant Vodafone is tipped to report slowing growth in its trading update on Friday as poor trading in southern Europe - especially Spain - takes its toll.

Broker Deutsche Bank expects the group to report organic service revenue growth slowed by 1.1 percentage points to 1.4 per cent, with Europe seeing a decline despite the increased use of smartphones.

Harvester-owner Mitchells & Butlers will attempt to shift focus back to its trading performance and away from the management turmoil that has rocked the company this year when it issues a trading update on Thursday.

Simon Burke's resignation as chairman last week left the top two jobs at the chain vacant after chief executive Adam Fowle announced his departure in March. Fowle had been at the helm for less than two years, while Burke took over from John Lovering less than six months ago.

M&B operates 1,600 sites in the UK including O'Neill's, All Bar One and Toby Carvery. The boardroom drama has overshadowed steady progress at the group, which has consistently reported strong sales at its pubs - thanks to drive in food sales.

Douglas Jack, analyst at brokers Numis Securities, expects this performance to continue. He said: "M&B's positioning towards value food should enable it to trade resiliently. Food-led managed pubs are outperforming both wet-led pubs and restaurants, aided by offering greater value-for-money."