Market Watch: Cycle of decline hits Halfords

THE embattled retail sector will remain in sharp focus next week when car care chain Halfords reports back on recent trading, while restaurant business Prezzo will also shed light on consumer conditions.

Firms including Next, Currys and PC World owner Dixons Retail and Argos parent Home Retail Group have reported disappointing growth since the festive season as customers tighten their belts.

There are fears of further gloom from the sector on Thursday when Halfords reports back on trading.

The group had a disappointing Christmas for cycle sales, which slumped 16 per cent on a like-for-like basis.

The company said it was hit as fewer bikes were given as presents and premium products were affected by a slowdown in sales through the UK government's Cycle-to-Work scheme.

Declining sales look set to continue in the fourth quarter to April, with economists at Investec forecasting a 2 per cent decline in like-for-like sales across the whole group. David Jeary, analyst at Investec, said: "Under a scenario of squeezed disposable incomes - arising from inflation across less discretionary spending areas such as food, fuel and utilities, exacerbated by direct and indirect tax rises - retailers of bigger ticket and more discretionary categories are likely to come under greater pressure."

Pizza and pasta restaurant chain Prezzo will reveal whether January's VAT hike and the soaring cost of food has affected its recovery when it announces full-year results on Wednesday.

Like many restaurants and businesses in the leisure sector, Prezzo saw its profits hit by the recession as it was forced to put on more promotions to compete for trade.

It scaled back restaurant openings as profits stalled, but a strong performance in its half-year results gave it the confidence to announce that it was back in growth mode.

Prezzo, which has more than 150 outlets, announced last month that it bought six properties from Caffe Uno Brasseries for 550,000 as part of its plans to open 20 restaurants in 2011. These are in addition to the 11 properties it bought from the company last August along with the right to use the Caffe Uno name as part of a 3.1 million deal.

When Prezzo last updated the market with results in September, it revealed underlying profits rose 21 per cent to 6.2m in the six months to 27 June. Nigel Parsons, an analyst at Evolution Securities, expects Prezzo to make underlying annual profits of 17.8m, a 9 per cent increase on the previous year.

But the market will be keen for news on trading since the year-end amid a slump in consumer spending.