Retail stalwarts Next, Tesco and Greggs will provide the first reports on Christmas trading ahead of further rises in costs expected in the coming months.
Fashion and furnishings group Next continues to offer the right product, at the right price points and in the right format to its target demographic, as evidenced by its uncanny knack of beating earnings expectations, say analysts at AJBell.
October’s third-quarter trading statement beat expectations and prompted a further upgrade to guidance from boss Lord Simon Wolfson for full-price sales, total sales, pre-tax profit and earnings per share.
This fiscal year to the end of January is a 53-week year, compared to the usual 52-week period last time around. Management currently believes that the extra week will add £20 million to profits and this does not form part of the current guidance given by management. Next will present the extra week, and any sales and profit uplift, as an exceptional item in the full-year accounts.
Thereafter, analysts will dig into full-price sales trends at the UK online and physical retail operations, the online international arm and how Next Platform continues to drive internet sales in particular, as it adds more brands – more than 40% of Next online sales in the UK now come from other brands.
Analysts will also look for any update on incremental costs from wages, national insurance contributions and packaging taxes, both in the year just ending and the new financial year about to begin. Comment on trade, tariffs, sourcing and shipping will be of interest too.
Next will pay its interim dividend of 87p per share on 5 January. The FTSE 100 firm will also pay a final dividend, which analysts believe will be 179p a share. On top of that will come a special dividend, of some 310p per share, which represents what Next terms as surplus cash generated.
The company halted its share buyback for the year at £131 million, on the grounds that purchasing stock at current levels does not meet its 8% equivalent rate of return criterion and has therefore promised a special dividend instead.
Tesco
The battle of the retailers’ Christmas advertising campaigns has been fought and now is the time to see how that shaped market shares and sales, profits and cash flow.
Despite a recent slip Tesco’s share are still up by a fifth in the past year and stand very close to levels last seen in 2010. That may reflect market share gains, since Tesco has increased its share of the UK grocery market to 28.3% from 28%, as of November, according to Kantar.
Chief executive Ken Murphy’s outlook assumes a decrease in full-year profits, due to the competitive environment and also increased costs in the form of food, ingredients, wages and utility bills.
AJ Bell says it will be interesting to see if Mr Murphy has an initial stab at quantifying the impact upon profits for the year to February 2027 from the Budget’s reforms to business rates for large properties, though he may leave that until April’s full-year results. Either way, this Christmas and third-quarter trading update will be measured against the guidance given back in October.
Greggs
July’s profit warning did not help the company’s shares, down 40% over the past year. Chief executive Roisin Currie attributed that setback to hot weather, weak high street footfall and the phasing of increased costs as the company built a new national distribution centre in Kettering and continued to add to its store estate.
October’s third-quarter update featured no incremental bad news, but no fresh good news, either, and questions continue to linger as to whether Greggs has expanded too far, too fast and made its menu too complicated. Worries over the state of the UK economy and weak high street footfall have not helped sentiment, either
Staff pay is the biggest cost, so analysts will been to see if Ms Currie discusses the increases in both the minimum wage and the national living wage announced in November’s Budget.
Greggs appears to have backed away from an initial plan to open 140-150 outlets this year and cut that back to around 120, even as the firm has stuck to its long-term goal of 3,000 sites. Net store openings in the first nine months came to just 57 (130 openings and 73 closures, including 39 relocations).
DIARY
Monday 5 January
- UK mortgage approvals
- US car sales
Tuesday 6 January
- Trading update from Next
- British Retail Consortium UK retail sales
- Purchasing managers’ indices (PMIs) for services industries
Wednesday 7 January
- Trading update from Topps Tiles
- Halifax UK house price index
- Purchasing managers’ index (PMI) for the UK construction industry
- EU inflation
Thursday 8 January
- Trading updates from Greggs and Tesco
Friday 9 January
- Trading updates from Sainsbury’s and UNITE
- US non-farm payrolls, unemployment and wage growth
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