UK DIY News
The coming week: Homebase & Argos
With no major corporate annoucements scheduled for Monday, the week's reporting kicks off with Home Retail Group (HOME), which will issue its first-quarter trading statement on Tuesday.
Poor weather in April is expected to have impacted both Argos and Homebase, the latter in particular. While Argos should have seen some benefit from the digital switch-over and generally decent consumer electricals sales, industry conditions will not have been helpful. Consensus expectations are for a like-for-like sales decline of between -1% and -6% at Argos and -8% at Homebase.
Philip Dorgan, analyst at Panmure Gordon, believes that Argos has too many stores and too high a fixed cost base, and forecasts that it will lose money in 2014. However, management stresses that a large store-closure programme is uneconomic, because its rent and rates are 9.6% of sales.
"We don't see a Blue Sky scenario emerging, given the fragility of the profits of both of Home Retail's operating companies and, at Argos, the need for significant store closure, major cost reduction and brand repositioning. We believe that the risks are therefore very much on the downside," says Dorgan. He rates the stock a 'sell'.
On the economic front, Tuesday will see the consumer price index for May being revealed.
Consumer Price Index (CPI) inflation dropped to 3% in April from 3.5% in March, its lowest level since February 2010. And May is likely to see a further decline after petrol prices fell by about 2.5% in May, which when combined with a 1.3% drop a year ago, would lower the targeted measure by 0.2%.
While food price inflation is expected to have moderated from April's 4.2%, Philip Shaw, economist at Investec, points out that upward pressure probably came from clothing and footwear costs, after May's drier weather enabled retailers to recover margins.
"Overall we expect CPI inflation declined to 2.8%, closer to the 2% target and further away from the governor's-letter-writing territory above 3%. Similarly we are forecasting the Retail Price Index measure to moderate to 3.3% from 3.5%," predicts Shaw.
The curtains will close with the publication of May's retail sales volume and June's Confederation of British Industry (CBI) industrial trends survey on Thursday.
Sales volumes collapsed by 2.3% on the month in April and although a 13.2% drop in petrol sales distorted the picture, sales excluding fuel still fell by 1.1%. May should have seen a recovery, partly as petrol sales normalised, but also as an improvement in weather conditions encouraged shoppers, especially in clothing stores which suffered a 5.2% slide in sales in April.
Anecdotal evidence supports a bounce, with the recent British Retail Consortium survey posting total sales growth of 3.4% on the year, compared with April's 1% decline. Shaw is predicting a 2.1% rise, and 1.1% ex-fuel.
Howard Archer, chief UK and European economist at IHS Global Insight, is expecting the CBI trends survey for June to indicate that manufacturers are currently struggling markedly, even allowing for the likelihood that activity was hit in June by the extra day's public holiday resulting from the Queen's Diamond Jubilee.
Latest survey evidence on the manufacturing sector has been largely weaker, including a dire purchasing managers' survey for May, while latest hard data from the Office for National Statistics shows that manufacturing output fell 0.7% month-on-month in April. Overall industrial production was flat in April as it was helped by the bad weather sharply lifting utilities output.
Source : Darshini Shah –Interactive Investor
www.iii.co.uk/articles/38993/week-ahead
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