Next Plc Morrison Ocado in retail spotlight

Thursday is going to be a big day for the UK retail sector.

Fashion, groceries and online will all represented.

The trading updates from Next Plc., Wm. Morrison Supermarkets and Ocado will come at time of heightened investor scrutiny as the sector is roiled by a multitude of challenges even as the consumer sector exhibits strong signs of revival.

The trading statements will follow swiftly after data released today (9th September) from industry organisation the British Retail Consortium showing total retail spending was 2.7% higher than a year ago.

Today’s retail data also compare to a rise in retail sales of just 1.3% in July.

This retail sales performance is the best since January, excluding the effects of the timing of Easter holidays.

Signs of a split in retailing trends

However, there are signs the fortunes of grocery retailers and fashion and also possibly general merchandise retailing are diverging to the detriment of grocers and the benefit of fashion and general merchandise.

The summer has already brought strong underlying results from such major UK retail names as SuperGroup Plc., the retailer of quirky casual wear, and Laura Ashley, the home ware and fashion brand.

Clothing and footwear sales increased at the strongest rate since December 2011, according to the BRC data, helped by back-to-school shopping and fashion retailers changing their seasonal collections.

However, spending on food declined again, marking its deepest three-month average fall since records began in December 2008.

Next Plc. second-half earnings expected to shine

Against this backdrop, Next Plc. will report half-yearly figures and would appear to be at an advantage. However, should it miss expectations, the market might well judge the FTSE 100 retailer unfavourably against a faster-growing, newer and nimbler set of fashion names that entered the market within the last decade.

Next said in July it expected full-year profit to be between £775m and £815m, a forecast that was £25m higher than previous expectations.

Second-half results are expected to be commensurate with expectations for the full year, given Next’s second-quarter sales were up 10.7%, including an 18.8% increase in sales from the directory business and a 6.4% rise in high street takings.

Wm. Morrison’s shares hinge on dividend news

Despite, Wm. Morrison’s firm share price performance today, its first-half profits are set to have halved amid plunging sales, adding further pressure to its chief executive Dalton Philips.

Analysts are expecting a 4.2% slippage in first-half revenues to £8.566bn compared to the interim period a year ago.

Despite the expectation of continued softer trading at Morrison, it is widely expected to maintain a previously flagged £300m dividend, even as some analysts warn the pay-out needs to be trimmed.

The dividend will be a major point of interest capable of deciding the direction in which the shares travel following the grocer’s earnings report.

Ocado statement may signal its first full-year profit

Ocado, has continued to struggle to post decent progress in terms of profits even as it makes good headway in its attempts to overcome logistical and other operational challenges.

However, after posting a half-yearly profit at its last results it appears to have its best chance for several years of achieving what has become something of a holy grail for the group: an annual profit.

Thursday’s third-quarter interim management statement will provide a firm indication of whether the company’s first annual profit is finally in the offing or not.

Ocado’s chances ought to be good and improving: Britain’s online grocery market is growing at around 15% a year, much stronger than the shop-bought grocery market. While online food shopping still accounts for only about 5% of total grocery sales, industry group IGD said in July it expected  the take to more than double in value over the next five years to £17bn.

In the meantime, Ocado will be queried over the prospects of further partnerships deals of the like which it signed with Britain’s No. 4 grocer, Wm. Morrison.

Observers will also be keen to hear of any progress in Ocado’s crucial customer fulfilment centre (CFC) in Andover, southern England. Announced with trading figures in July, Ocado’s newest CFC is expected to have a capacity of 65,000 orders per week – one third the capacity of another in central England.

Building works were expected to start in the fourth quarter of 2014.

Ocado’s full-year revenues are forecast around £948m. It reported gross sales of £442.4m for the first half in July and profit before tax and one-off items of £7.5m in the 24 weeks to May 18.