George Salmon, Equity Analyst 2 January 2019
Christmas is crucial for retailers, and next week we find out how the high street giants have weathered what’s expected to be a pretty bleak midwinter.
Among the companies we’ll be covering:
- Marks & Spencer's store closures mean revenues will inevitably look bad, but with M&S Food also running into trouble it could have been a particularly tough year.
- Christmas is an important time for Tesco, but investors will also have their eyes on the international operations.
- Taylor Wimpey confirmed as recently as 13 November it’s on track to hit full year guidance, so this update is all about the future outlook.
FTSE 350 stocks reporting next week
|No FTSE 350 Reporters|
|Morrison (WM)*||Christmas Trading Statement|
|Safestore||Full Year Results|
|SIG||Full Year Trading Statement|
|Ferrexpo||Q4 Production Report|
|Sainsbury*||Q3 Trading Statement|
|Taylor Wimpey*||Full Year Trading Statement|
|B&M||Q3 Trading Statement|
|Card Factory||Q4 Trading Statement|
|Hilton Food Group||Trading Statement|
|Marks & Spencer*||Q3 Trading Statement|
|Mitchells & Butlers||Q1 Trading Statement|
|Premier Oil||Trading and Operations Statement|
|Tesco*||Christmas & Q3 Trading Statement|
|Grafton Group||Q4 Trading Statement|
*Companies on which we will be writing research
M&S is closing dozens of mainline stores as part of its current restructuring, and that will inevitably mean total sales are lower this Christmas.
Ideally, the remaining stores would be able to keep like-for-like (LFL) sales moving forwards, while the still growing food business delivers results. Unfortunately recent updates have shown that’s not the reality.
The first half saw Clothing & Home LFLs sink 1.1%, and food was worse as LFLs fell 2.7%. Data from market research group Kantar suggests things deteriorated still further in the run up to Christmas.
Given the troubles affecting the wider high street and the group’s lack of a material online offer, it’ll come as no surprise to hear we’re not expecting pretty things from Marks next week.
Tesco's UK business has delivered 11 consecutive quarters of like-for-like sales growth. Investors will be hoping for a strong Christmas.
For all the positive strides, in many ways it’s a case of one step forward, one step back at the moment.
Competition has been fierce among the UK’s supermarkets for several years, and with Sainsbury and Asda set to merge, that environment could be about to get tougher. We’ll find out what the CMA has to say about the deal early this year, with a final decision due in March.
Tougher trading restrictions in Poland mean like-for-like sales in Tesco’s Central European business fell 1.2% at the half year, while bulk selling operations in Thailand have also proved challenging. Weaker than expected profitability here meant first half numbers came in shy of expectations. Investors will want to see signs that margins in the Thai business can move back towards the 6% it achieved last year.
Despite low interest rates boosting affordability and a structural housing shortage, worries over the direction of the economy post-Brexit mean the UK housing market is starting to creak.
It’s normal for activity to wind down in the run-in to Christmas, but the wheels were turning even slower than usual this festive period. Rightmove says prices fell 3.2% between October and December, while the latest data from both Nationwide and Halifax don’t paint a pretty picture either.
This uncertain environment is clearly not good news for the builders, but it’s worth remembering that new build trends have been healthier than the wider market in recent times. It’ll be interesting to see if supportive government policies like Help to Buy can keep that going.
A non-executive director of Hargreaves Lansdown plc is also a non-executive director of Tesco plc.
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