Retail giants to reveal misery of next 12 months

Published on Saturday 3 January 2009 12:24

THE severity of the crisis facing retailers in 2009 will become clearer this week when some of the UK's biggest stores issue their latest figures.

Marks & Spencer will give its third-quarter trading update for the three months ending December on Wednesday. Freddie George, retail analyst with Seymour Pierce, has predicted a profit warning will be issued at the same time.

He said: "As with last year, we believe the trading statement will disappoint. 2009-10 profits will be downgraded and the 2008-9 dividend will inevitably be cut."

M&S launched an aggressive pricing campaign over the festive period, with 20% discount days in the run up to Christmas and reductions of up to 50% in the Boxing Day sale. But analysts say the discounting has put margins under further pressure.

Nick Bubb at stockbrokers Pali International is expecting M&S to report a 7% plunge in third quarter comparable food sales. He added that general merchandise like-for-like sales could plummet by 10%.

Analysts said the figures illustrate the difficulties facing the entire retail sector, but that M&S has specific issues to deal with. Sam Hart, retail analyst with Charles Stanley, said food is a particular problem for the store. It has stuck to a premier pricing strategy which chairman Stuart Rose is unlikely to alter as he is confident consumers will pay for quality, despite the downturn.

Debenhams and Next will issue trading updates on Tuesday. At Debenhams, debt levels as well as sales will be in focus as the department store is reportedly planning a fund-raising move to reduce its 1bn debt mountain.

In October, Debenhams reported a 16% drop in annual profits to 110.1m and said sales had fallen by 4.2% since the end of August. Analysts expect Debenhams will this week announce a fall in like-for-like sales of between 3% and 5% for the 18 weeks to January 3.

While Debenhams discounted heavily in the run-up to Christmas, Next, the UK's second biggest clothing retailer, held back in a bid to protect margins. In November, Next reported a 4.4% drop in sales. Analysts have forecast a decline of between 6% and 8% in sales for the 21 weeks to December 24.

The one bright spot this week in the retail sector is likely to be a third-quarter update from J Sainsbury on Thursday. Recent data from market researchers TNS and Nielsen suggest the group has continued to grow sales and hold onto market share.

The economic downturn hit most retailers hard over the Christmas and new year period. Experian's Retail Footfall Index revealed that a last minute rush failed to boost overall shopper numbers in December. Scotland, along with north-west England, had the worst year-on-year change, with shoppers down by 6.74%.

Experian has warned that retail business failures in the UK will rise 21% in 2009 with 440 businesses expected to go under between now and the end of April.