Market Watch: Concern at growing pains for Mothercare sales

FAMOUS high street names WH Smith and Mothercare will take the spotlight this week during a slender few days for corporate updates.

Any signs of a pick-up in trading at retailer WH Smith should be well received on Thursday after a disappointing third quarter caused by the impact of the spring volcanic ash cloud on its airport and travel centre sites.

WH Smith reported a 4 per cent slide in like-for-like sales at WH Smith Travel - which operates 495 outlets at airports, train stations and motorway services - after the ash cloud and British Airways strikes caused widespread flight chaos.

Hide Ad
Hide Ad

But analysts at Seymour Pierce believe the fourth quarter will have been better for the group.

WH Smith has already made reassurances that the travel disruption would not impact profits and Seymour Pierce is forecasting a rise in pre-tax profits to 87 million, up from 82m.

In the high street division, comparable sales were 4 per cent below a year earlier during the third quarter. It is re-balancing the mix of the business away from lower margin CD and DVDs and on to books, stationery and confectionery markets - a move that is impacting sales. However, Seymour Pierce said that the management had turned the business into a "sustainable growth story, with travel now accounting for more than 50 per cent of earnings".

Also on Thursday, the trading update from babycare products retailer Mothercare will be watched closely for its outlook on the UK market.

Its shares have come under pressure in recent weeks as investors worry about the group's reliance on the fragile UK market, despite expansion overseas and assurances that international growth will offset challenging UK conditions.

Mothercare has 1,167 stores in 53 countries and posted a record year for its international arm in the year to 31 March, up 21 per cent.

In April it reported its first drop in UK like-for-like sales for 19 quarters and has already said it is "planning cautiously" for tougher times ahead.

Charles Stanley said the business was still very dependent on the UK, accounting for about 55 per cent of group profits. The broker said: "Our two major concerns centre around increased price competition - Mothercare is often 15 per cent to 20 per cent more expensive the competitors - and still pronounced profit sensitivity to even small sales shocks."

Hide Ad
Hide Ad

But Mothercare is not standing still. It is targeting India and China as key growth markets after forming joint ventures with local partners.

Acquisitions continue in the UK as well, with the group recently snapping up the Blooming Marvellous maternity brand.

Punch Taverns' chief executive Ian Dyson will preside over his first set of results when the pubs group reports full-year figures on Tuesday.

The former Marks & Spencer finance chief joined Punch on 6 September and succeeded Giles Thorley, who spent nine years with the group. Punch recently forecast stronger-than-expected annual profits after improved summer trading at its revamped managed pubs estate.

Like-for-like sales in the division rose 2.6 per cent in the fourth quarter to the end of August, which helped reduce the decline for the year as a whole to 2 per cent.

It has benefited from the roll-out of food-led sites, such as Chef & Brewer, as well as the refurbishment of a quarter of the 800-strong estate.

Sales also improved in the leased and tenanted division -by far the largest in the group, with more than 6,300 pubs.

Analysts are now expecting annual pre-tax profits of 131m, although this is still down on the 160.2m seen the previous year.

Hide Ad
Hide Ad

And the group is still providing nearly 2m a month in financial support to tenants after the industry was knocked by a consumer spending slump, the smoking ban and alcohol duty hikes.

The incoming increase in VAT to 20 per cent will come as a further headache.

But analysts at Numis Securities believe Punch will still make progress, predicting the managed estate will return to profit in the new financial year.

They said: "We expect Punch to transform into an equity growth story based on the managed estate."

Related topics: