The coming week will see a deluge of trading updates from the UK retailers that will give investors a glimpse of how the high street has fared over the key festive period.
Supermarkets will provide the biggest focus. First up on Tuesday will be WM Morrison Supermarkets PLC (LON:MRW), followed by J Sainsbury PLC (LON:SBRY) on Wednesday and Tesco PLC (LON:TSCO) on Thursday.
AJ Bell’s Russ Mould thinks that bad weather in the weeks leading up to Christmas and the New Year may have kept some shoppers away apart from buying the festive essentials, however brighter conditions in the week in between the two holidays could have enticed punters out again in search of bargains amid post-Christmas discounting.
“The Office for National Statistics said retail sales fell by 0.6% in November versus the previous month, although those figures don’t include Black Friday sales. That suggests shoppers were delaying their Christmas shopping until closer to the big day”, Mould said.
He added that while a post-Christmas uptick may provide some relief, it did not bode well for profit margins if retailers were being forced to slash prices just to shift their stock.
“The perfect situation for retailers would be selling high volumes of goods over the Christmas season at full price. In reality what we might get is subdued volumes at cut price, which is the not the recipe for a healthy business”, he added.
“These early indicators would suggest the forthcoming retail updates may not be full of joy,” Mould concluded.
Grocery cracks or crackers
Morrisons’ shares were one of only a handful of FTSE 100 companies to suffer a decline in 2019 despite an overall positive performance by the stock market as the food retailer continued to lose market share to its rivals and the ascendant discounters Aldi and Lidl.
With its financial year to end this month, Morrisons’ post-Christmas update will be crucial, however, consensus estimates are expecting roughly flat sales although there could be some benefits for profits as cost-cutting measures begin to pay off.
Sainsbury’s was also among the small number of declining blue-chip stocks during 2019, and the grocer will be hoping to draw a line under a fairly torrid year that included its botched attempted merger with Walmart Inc (NYSE:WMT)-owned rival Asda.
The focus for the Christmas period is likely to be the performance of Sainsbury’s Argos division, sales figures from which are expected to reflect the difficult conditions for the retail sector, although, there is some hope that a post-election ‘bounce’ could occur as uncertainty clears.
Tesco, meanwhile, is currently benefitting from a share price surge following a restructuring headed by its soon-to-be-former chief executive Dave Lewis, who is due to step down in summer 2020.
Aside from the Christmas trading figures, investors will also be on the lookout for any news on the potential sale of the firm’s Asian business which could net it up to £6bn and raise the possibility of a special dividend for shareholders.
Is Greggs still on a roll?
The bakery chain delighted investors in November announcing pre-tax profit would be higher than expected, with analysts at Peel Hunt bumping their forecast from £110mln to £115mln, adding there would be scope for further increases.
The six weeks to 9 November saw sales rising 12.4% and were followed by the launch of its ‘festive bake’.
The additions to the menu did not stop there as the new year comes with a meat-free version of its popular steak bake, available just at the start of Veganuary – a movement encouraging people to go meat and dairy-free for the whole of January.
The company may comment on the initial performance of the vegan steak bake, available in 1,300 of the 2,000 UK shops until 16 January, expanding to the whole estate thereafter.
People were reportedly queuing outside a Newcastle branch on 1 January, when it made a late-night premiere.
Analysts at Peel Hunt are expecting that the launch of the vegan steak bake will help the company overcome a tough first quarter comparative, however, they are still concerned that the company’s momentum will start to wane which in turn could put downward pressure on the share price.
M&S hopes for a fresh start to 2020
Also joining the list of Christmas updates on Thursday will be food and clothing retailer Marks and Spencer Group PLC (LON:MKS), which will be hoping for a fresh start in the new year after a rocky 2019 that saw it relegated from the FTSE 100 for the first time in its history.
Shares in the firm are down 13% for the year, however, the stock is 30% higher than its Autumn lows thanks to signs of growth in the food business, a trend that investors will hope has continued in the key festive period.
But problems are still persisting in M&S’s clothing and home division, with the company now predicting gross margins declines of between 0.25%-0.75% compared to the previous forecast of between 0.25% growth to a 0.25% decline.
Analysts at Peel Hunt are hoping that the solid Christmas performance from fellow retailer Next PLC (LON:NXT) may indicate that the high street had a more bearable Christmas, which could provide a little relief for M&S’s non-food businesses.
The broker has also said like-for-like food sales “could surprise on the upside” but the shares still retained little interest as M&S continued its turnaround efforts.
JD Sports still in fashion
Analysts see the FTSE 100-listed ‘athleisure’ retailer as one of the winners in the changing UK clothing retail market, although it may not have been so merry as profit margins could be squeezed by pre-Boxing Day sales.
JD is also still dealing with the investigation into the completed acquisition of trainer retail chain Footasylum carried out by the Competition & Markets Authority, currently on phase 2, which could force shop closures to get clearance or even block the deal completely.
US jobs in focus
Friday will also bring the US jobs report for December, coming in a week later than normal due to the festive period.
The figures could provide some insight into the likelihood of any interest rate increases from the Federal Reserve in 2020, as a strong jobs market and wage growth are both triggers for central bank hikes.
Last month the figures showed the addition of 266,000 jobs, the best initial figure since January. Meanwhile, wages rose 3.1% to US$28.29 an hour year-on-year, so if these trends continue traders will likely expect the Fed to consider rate rises soon.
Significant announcements expected for week ending 10 January:
Monday January 6:
Economic data: UK services PMI
Tuesday January 7:
Economic data: US balance of trade, US ISM non-manufacturing
Wednesday January 8:
Economic data: Halifax UK house price index
Thursday January 9:
Trading announcements: Tesco PLC (LON:TSCO), Marks and Spencer Group PLC (LON:MKS), International Consolidated Airlines Group SA (LON:IAG), Card Factory PLC (LON:CARD), Dunelm Group plc (LON:DNLM), Nichols PLC (LON:NICL)
Economic data: US weekly jobless claims
FTSE 100 ex-dividends to knock 0.04 points off the index: AVEVA Group PLC (LON:AVV)
Friday January 10:
Economic data: US non-farm payrolls