March 5, 2010 / 4:39 PM / 9 years ago

Retailers to shine light on consumer health

LONDON (Reuters) - Updates from three of Britain’s biggest retailers next week will shed more light on the strength of consumer spending after a weather-impacted start to 2010 and their fears that the upcoming election could hit confidence.

A shopper leaves a John Lewis store in Leicester, February 13, 2009. REUTERS/Darren Staples

Home Retail, Britain’s biggest household goods retailer, John Lewis, which runs department stores and the upmarket Waitrose grocery chain, and William Morrison Supermarkets, Britain’s fourth biggest grocer, will all publish statements on Thursday.

A recent survey from the Confederation of British Industry which said retail sales volumes rose at their fastest pace in nearly three years in February and an upbeat survey on consumer confidence from GfK NOP have added to optimism on shopper spending.

Against this, however, both the Nationwide and Halifax building societies reported falls in British house prices in February.

Analysts are wary about retailers’ prospects amid fears that steps to cut government borrowing after a general election, that must be held by June, could drag down consumer confidence.

On March 3 John Lewis Chairman Charlie Mayfield said signs of a consumer recovery in Britain were a “false dawn” and predicted trading conditions will get tougher.

But he said the employee-owned John Lewis, which is outperforming rivals such as Marks & Spencer, would post a “good set” of results for the year to January 31, reversing a 20 percent first-half profit fall.

Nick Bubb, analyst at Arden Partners, is forecasting a 13 percent increase in full-year underlying pretax profit to 315 million pounds, with a bonus to the firm’s 69,000 staff of 14 percent of salary.

A fourth quarter trading update from Home Retail, owner of high street catalogue retailer Argos and the Homebase DIY chain, is not expected to look so pretty, with both businesses hit by January’s heavy snowfall.

For the eight weeks to February 27 analysts are forecasting sales at stores open over a year to be down 4-10 percent at Argos, according to a company poll of eight, with the outcome also impacted by its spring/summer catalogue being launched a week later than last year, the annualisation of Woolworths’ demise and January’s VAT (sales tax) increase.

Homebase’s same store sales are forecast in a range of up 4 percent to down 8 percent.

Gross margins are forecast down 250 basis points at Argos and down about 350 basis points at Homebase, reflecting pressure on buying margins from the weakness of sterling.

In January, Home Retail lifted guidance for year to end-February 2010 underlying pretax profit to about 285 million pounds but warned trading would be tough this year.

Morrisons is set to post a 19 percent rise in underlying profit to 757 million pounds for the year ended January 31, according to the average forecast of 24 analysts polled by ThomsonReuters I/B/E/S Estimates.

The firm has outperformed bigger rivals Tesco, Asda and Sainsbury, for most of the past two years, helped by its focus on low prices, promotions and fresh food.

Its three-year “optimisation” plan, which has helped to boost profit margins by revamping IT systems and improving distribution, has come to an end, and some analysts think the group might set a new target.

Jefferies analysts think the firm could point to a further 150 million pounds of cost savings over the next three years.

However, a detailed strategy update, including whether Morrisons might revive a share buyback program, is likely to wait until at least September, when new chief executive Dalton Philips will have had time to settle in the job.

Morrisons reported a 6.5 percent rise in sales, excluding fuel and VAT, from stores open at least a year in the six weeks to January 3.

But industry data suggest sales have slowed since then, and analysts think the rise in underlying sales for the whole fourth quarter could be 5.0-5.5 percent.

Editing by Jon Loades-Carter

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