The week ahead

Oct 17 2008 By nebusiness

More gloom is expected from retailers next week as Debenhams and the owner of Argos give updates, while official figures are set to show the economy shrinking for the first time since 1992.

Nervous investors will be warily eyeing comments on current trading from Argos owner Home Retail Group in half-year results next Wednesday.

The firm, which also owns DIY chain Homebase, announced heavy sales falls for both businesses in the second quarter. Like-for-like sales at Argos were down 5.8%, while Homebase’s same-store sales dived 8.3%.

Chief executive Terry Duddy said at the beginning of September the performances reflected a ``difficult consumer environment", although half-year profits would in line with expectations as costs were reined in.

Consensus forecasts put the group’s half-year profits at £121 million.

But a profit warning from builders’ merchant Travis Perkins added to the jitters this weeks as construction activity virtually grinds to a halt in recent financial turmoil.

Following Travis’s downbeat comments, Shore Capital analyst Kate Calvert said: ``While Home, through Homebase, and Kingfisher - through B&Q - are less exposed to the hard end of DIY than Wickes, this statement does seem to imply that the market has weakened further in September, which is after the period both DIY retailers last reported."

Although the Argos chain accounts for three-quarters of Home’s total sales, Homebase is likely to drag back the performance of the group.

``DIY spending is driven by housing transactions and these have reached record lows of late," she added.

Currys and PC World owner DSG International is also unlikely to give much cheer to investors with a trading update next Thursday.

The group is facing consumer belt-tightening and competition from the tie-up between US consumer electronics giant Best Buy and Carphone Warehouse, but began a fightback this week by opening its first megastore near Birmingham.

Pali International retail analyst Nick Bubb said: ``Regardless of the Best Buy threat, trading conditions in big ticket/household goods markets are clearly deteriorating and the update seems sure to bring more downgrades."

Drugs giant GlaxoSmithKline reports is expected to report falling profits again when it released third quarter figures on Wednesday.

The group has so far this year trailed behind its 2007 performance after a sharp fall in sales from its under-fire diabetes treatment Avandia. Profits fell 13% in the first quarter, 3% in the second and the market is expecting pre-tax profits to have dropped by 10% in the three months to the end of September, pencilling in £1.69 billion against £1.88 billion a year ago.

Competition from cheaper generic rivals has also taken its toll on GSK, which has added to the pressure from its Avandia woes. These came after allegations that the drug increased the risk of heart attack.

But GSK said in April that it hoped the worst of the Avandia sales declines may be over and analysts believe its total revenues may have turned the corner. The market is pencilling in a 4% rise in group-wide sales to £5.7 billion - a marked improvement on the declines of 4% and 2% seen in the first two respective quarters.

The stock has also seen a flurry of broker upgrades as the market looks to the pharmaceutical sector as a safe haven amid the wider stock market turmoil. WestLB recently praised its ``defensive qualities", despite the prospect for a potentially difficult 2009, with Avandia still set to be under pressure and competition hotting up for its asthma drug Advair.

Department store chain Debenhams, which posts full-year results on Tuesday, cheered the market with its last update in September.

Coming up in online and in print in nebusiness next week:

Meet the enigmatic leader of one of the region's most forward-thinking further education colleges.

Find out why traders are joining forces to improve Newcastle's business district.

In our in-depth commercial property magazine on Wednesday, analysts give their views on the rural planning issues.

On Thursday be the first to find out about the latest happenings from the region's digital sector in our weekly supplement nedigital business.