Retailers set to reveal how the crunch is biting

Feb 16 2009 by Iain Laing, The Journal

A RAFT of retailers including B&Q parent Kingfisher and Sports Direct will update the market this week, while transport giant Go-Ahead will reveal how it has fared in the downturn.

Newcastle United owner Mike Ashley’s Sports Direct International sportswear empire will report on performance over the key Christmas and New Year period in a trading update on Wednesday.

The group, which owns the Sports World chain, exceeded City hopes in December with underlying earnings up more than 7% to £89.9m in the 26 weeks to October 26.

The business, whose other brands include Kangol and Dunlop, has been hit by the failure of home nations to qualify for the Euro 2008 football championships as well as the tough conditions on the high street.

But Sports Direct recently maintained its guidance of £135m in full-year earnings as the firm squeezed efficiencies from the business and drew in customers with its cheaper offering.

Chief executive David Forsey said at the time he found it difficult to predict the impact of the flurry of price-cutting among retailers on January sales.

“The rulebook has been thrown out the window a long time ago. We just have to see how things develop,” he added.

Nonetheless Kate Heseltine, analyst at Seymour Pierce, said she is not expecting any big surprises in the coming update and stood by forecasts for pre-tax profits of £57m for the year to April.

The UK’s biggest bookmaker, Ladbrokes, will reveal how the business is faring in the downturn with full-year figures on Thursday.

The group is expected to highlight robust trading, following the lead of rival William Hill, which recently pleased investors after it raised its earnings outlook for 2008.

Bookies have so far shown surprising resilience in the past year to the spending slump and tough economic conditions.

Analysts are pencilling in largely flat operating profits for 2008, at £240m, not including profits from its high- rolling customers, compared with £241m in 2007.

B&Q owner Kingfisher’s Thursday trading update will be watched closely for signs of worsening sales in the UK.

In November, the retail group reported sales at its B&Q business down nearly 9% amid the slump in consumer spending. The stagnant property market meant sales of DIY products performed “relatively well“ with a 3% drop in the period.

Transport group Go-Ahead’s interim results will come under scrutiny on Thursday for signs that rising unemployment in London is hitting its rail division.

The recession has increased uncertainty surrounding the company’s rail division, which includes the London commuter routes Southern and Southeastern.

Gatwick Express service, which became part of the Southern franchise in June, has also seen a softening in demand as a result of a fall in air travel at Gatwick Airport.

Go-Ahead said in December the rail division was still expected to achieve a good level of passenger revenues growth in the second half of the year, albeit at a lower rate than in the first half.

But a recent note from RBS analysts said: “Go-Ahead’s franchises are focused on London and so exposed to the capital’s employment markets.”

The Newcastle firm, which has a fleet of 3,400 buses, has also said it expected lower first half profits from its bus division after failing to recover £2.5m of additional fuel costs.

RBS analysts said they expected “few surprises“ from the results, forecasting £53.7m profit down from £58.3m the year before.

The rulebook has been thrown out the window ... we just have to see how things develop.