Week which will test consumer confidence
Mar 17 2008 by Andrew Mernin, The Journal
CONSUMER confidence will be tested this week with figures and outlook statements due from Next and Comet owner Kesa Electricals.
Fashion chain Next is expecting to report annual profits of up to £502m in results on Wednesday, but all the attention will be on the group’s outlook for the current year as the consumer spending squeeze persists.
Rigid cost controls, a lack of discounting in the run-up to Christmas and a better-than-expected performance from the Directory catalogue and online business protected profits this year, but Next is facing up to rougher times ahead.
The company gave a gloomy view of its prospects in a post-Christmas update which forecast that its high street operation would not return to growth in 2008.
Next – which is overhauling its ranges and stores in a bid to “put the magic back” into the brand – warned that shoppers coming off cheaper fixed rate mortgages would come under increasing strain.
Like other retail firms the business has come under severe stock market pressure and its share price has fallen from a high of 2437p last May to under £12 in the worsening climate.
As soaring oil and energy prices weigh heavy on household budgets, official inflation figures tomorrow are expected to confirm that the cost of living rose sharply last month.
The Consumer Prices Index (CPI) increased to 2.2% in January and all the recent double-digit energy bill hikes are set to see February’s figure rise further.
The Office for National Statistics (ONS) has changed the way it calculates inflation to reflect the trend for price increases to come into effect sooner.
Instead of phasing in increases over a four-month period, the ONS will include gas and electricity rises from the day they are introduced, which will see the rises hit all in one month, possibly increasing CPI in February by as much as 0.4%.
This could push the official measure of inflation up to 2.5% in February, according to economists. Some are even forecasting a rise to 2.6%, with increasing food and petrol costs adding to the energy price pressure.
The minutes of the Monetary Policy Committee’s decision earlier this month to hold rates at 5.25% are also due on Wednesday.
They are expected to reveal that policymakers almost unanimously voted not to cut rates again as inflation pressures loom, with economists predicting an eight to one vote to hold.
Strong demand for flat-screen televisions and laptops over the festive period helped Comet parent Kesa Electricals avoid a Christmas sales disaster. But full-year figures could reveal a dip in profits when the group reports on Wednesday.
The group is thought to have suffered amid a slowdown in consumer spending in both of its key markets – the UK and France, where it operates as Darty.
Christmas trading saw like-for-like sales rise marginally, up 0.7% for Comet and 2.2% for Darty in the two months to January 8, however the group admitted that market conditions were “difficult”.
Analysts are expecting adjusted pre-tax profits to slip by £500,000 to £168m in 2007, but some are forecasting a steeper decline.
