Hello and welcome to Stock Watch Live.
The third company reporting week of the new year and the retail updates keep on coming. This week it’s the turn of Dixons Carphone which is due to give its trading update on the all-important Christmas period on Tuesday.
Dixons makes its money from electricals and mobile phones, having bought mobile phone retailer Carphone Warehouse in 2014.
Before Christmas, Dixons Carphone cut its dividend and launched a turnaround plan with the target of achieving cost savings of £200 million. That was after posting a first-half loss of £440 million, after turning in a profit of £54 million a year earlier.
The company blamed the loss on non-headline charges of £490 million mainly from having to write-down the value of its mobile business.
The company said it would revert to the previous policy of three times cover for dividend, leading to a 40% reduction in the dividend this year. But it said this would allow 'the dividend and the pension fund contributions to be at least covered by free cash flow, which we consider to be prudent,' the company explained.
Back in June it had already talked about headwinds hampering sales at its mobile business in the UK and Ireland. Those headwinds are what much of the retail sector has faced - a slowdown in spending, weakening consumer confidence, rent hikes, wage rises and so on. But in the mobiles business it also faced specific pressures from mobile phone operators over airtime contracts.
In September, Dixons Carphone said like-for-like revenue was flat in the first quarter, as World-Cup fever boosted demand for consumer electronics, but difficulties in its mobile segment persisted. The retailer did though maintain its full year pre-tax profit guidance of around £300 million.
What investors will want to know is how business has gone outside the UK and Ireland, especially in the Nordic region and Greece where like-for-like revenue had been growing at 9%. And hoping there are no more unpleasant surprises from its review of the personal data breach in 2017, which was found to have affected as many as 10 million customers - far more than it had originally thought.
HSBC rates the shares a buy, but has cut its price target from 195 pence to 150 pence.
On Wednesday we get half-year results from Joules and a trading update from Burberry. Both self-styled proponents of classic British styling, they have both also so far weathered the storm that has hit so many others in the retail sector.
For a company that is reliant on UK shoppers Joules turned in a notably strong performance over the Christmas period, which it told the market about earlier this month. Saying it was maintaining its outlook on full-year profits, the fashion retailer famous for its colourful macs and stripey tops said retail performance during the period supported the board's previously stated confidence in the group achieving full year 2019 profits before tax in line with its expectations.
For the seven-week period to 6 January, the Joules brand continued to perform well, with retail sales increasing by 11.7% against the same period a year before. This was driven by 'good performance' through Joules' own digital channels, as well as concession partners' websites.
The management team at Joules has clearly identified the shift in consumer shopping trends and put a strategy in place to meet the demands of the changing consumer environment, it’s also acknowledged that this is an ongoing shift. Looking ahead in December, the company forecast that trading conditions in the UK would remain challenging over the near term, with continued macroeconomic uncertainty, rapidly changing consumer shopping behaviours and increased competition.
Berenberg rates the shares a buy and has set a price target of 360 pence.
Another fashion retailer that many will be watching closely, to see if it can continue to buck the trend, is Burberry. And if it manages to pull that off then it’s no mean feat when you consider that it has the UK’s retails woes plus a slowing Chinese market to contend with.
Chinese shoppers have long been a core part of Burberry’s clientele. Shares in many of Burberry’s fellow luxury goods rivals like Prada and LVMH saw their shares fall recently on the back of the release of economic data that showed a domestic slowdown and provided evidence that a prolonged trade war was damaging the Chinese economy. British group Burberry however remarkably defied the gloom.
Back in November it managed to post a decent rise in first-half pre-tax profits, despite revenue falling 3%, but it admitted that was a result of cost-cuts which helped offset flat retail revenue growth.
All eyes will be on whether that is still an issue. And whether the usual culprits are to blame. Interestingly, last time around regional sales growth was mixed, with the UK and Italy actually seeing improved performance, but the Middle East looking weak.
But Burberry maintained its guidance at constant currency for 2019 and said it remained on track to deliver cost savings of £100 million.
Most brokers seem to think the shares are worth £18-£19. Jefferies International rates them a hold and has cut its price target from £20.60 to £18. Merrill Lynch has just raised its investment rating to “neutral”, the same as UBS, which has also trimmed its price target by a pound to £19.
Berenberg says the shares are a buy but only has a £19.20 price target on them, while Morgan Cazenove which is neutral on the shares has set an £18.20 price target. Only Goldman Sachs, which is again neutral, has set its price target above £20 at a very specific £21.94.
Also in the week ahead keep an eye out for results from budget airlines group EasyJet, Fevertree, the tonics maker and pubs group Fuller Smith & Turner, as well as property developer Countryside Properties and London-centric lettings and estate agent Foxtons. And you will be able to find out more on their trading updates, as they report, on the Markets & Insights section at Fidelity.co.uk.
And that’s all from me for this week. See you next time.