The retail and banking sectors will be under the spotlight when Lloyds, HSBC, Sainsbury’s and Marks & Spencer update the market in a busy week for corporate results.
Taxpayer-backed Lloyds Banking Group is expected to report a slide in profits on Tuesday when it updates the market without its chief executive, who has been forced to go on leave with health problems.
Shares in the bank have dropped 4 per cent since former Santander UK boss Antonio Horta-Osorio, who took over in March, announced he was following doctor’s orders and taking a break from his efforts to revive the business.
Lloyds’ market value has now slumped by more than a half in just over a year, and its shares are currently trading at around 30p. That’s less than half the price the Government paid for its 41 per cent stake to bail the company out following the financial crisis.
The bank is expected to reveal another lacklustre trading performance in the three months to the end of September, as it continues to be hit by a lack of confidence amid the market turmoil caused by the eurozone debt crisis and fears of another global recession.
James Invine, an analyst at Societe Generale, expects bottom-line pre-tax profits to decline 44 per cent to £379 million in its third quarter.
Lloyds has been trying to offload its riskier loans in recent months, but it will only have reduced this by £4 billion, compared to £8 billion in the previous quarter, he predicts.
However, its impairments on bad loans will reduce 11 per cent to £2.5 billion in the quarter.
Lloyds reported a £3.3 billion pre-tax loss in the six months to the end of June, compared with a £1.3 billion profit last year, after it after it set aside £3.2 billion to pay for compensation claims for mis-selling Payment Protection Insurance.
The bank may also provide an update about how its plans to sell off 632 branches are progressing. It was ordered to sell the branches by the European Union in return for the £20 billion of state aid it received following the 2008 credit crisis.
The group is reportedly considering floating the business - dubbed Project Verde - after receiving limited interest in buying the branches.
Elsewhere, HSBC is expected to report a better performance, partly as a result of its greater exposure to emerging markets such as China and Latin America.
James Invine, an analyst at Societe Generale, expects the group’s profits to rise 80 per cent to 6.4 billion (£4 billion) in the three months to the end of September.
This is despite his expectation that the bank will take a $1.4 billion (£877.3 million) hit from its US consumer finance arm.
The group has announced plans to cut up to 30,000 posts by 2013 as part of a cost cutting drive and may announce further moves along these lines.
HSBC’s move reflects tougher times for the investment banking arms of the big banks that have seen widespread redundancies announced at rivals Credit Suisse and UBS in the past week.
It reported a 3 per cent rise in profits to $11.5 billion (£7 billion) in the first six months of its financial year, driven by strong results in Asia.
In the UK, where the company has 1,290 branches and around 52,000 staff, profits rose 29 per cent to £843 million.
High street bellwether Marks & Spencer is expected to report a drop in profits on Tuesday as it feels the pain inflicted by the storm battering the UK’s high streets.
Analysts expect the retailer, which operates 700 stores, to report a 10.8 per cent fall in pre-tax profits to £311 million in the six months to the end of September as it struggles to pass on higher prices to cash-strapped customers.
Like-for-like sales of general merchandise sales, which includes clothes and homewares, are expected to slump 2.8 per cent in the half-year, having been flat in the first quarter.
Total like-for-like sales are expected to be down 0.9 per cent, despite a predicted 1.1 per cent increase in food sales.
This would mark a dramatic slowdown on the 1.7 per cent increase in the 13 weeks to July 2.
Marks has been hit by the huge number of promotions on offer at both its supermarket and fashion rivals, which has seen its profit margins squeezed as it tries to compete.
Marks started in summer sales a week early this year, in line with the rest of the high street, as retailers slashed prices in a bid to tempt shoppers whose income is being hit by the biggest squeeze on consumer spending in a generation.
The hot weather in September is thought to have hampered an already depressed clothing market by causing shoppers to postpone buying autumn and winter ranges such as coats and jumpers.
Andrew Hughes, an analyst at UBS, said: “As a UK-focused mainstream clothing retailer and premium food retailer M&S remains to a degree at the mercy of the UK consumer.
“Although consumer confidence has stabilised at a low level, disposable income has deteriorated as inflation continues to increase ahead of earnings.”
Chief executive Marc Bolland recently announced a £600 million revamp that it hopes will make its outlets easier to shop in and boost sales of its own brands.
The stores will include ‘shops within shops’ for each of its brands, such as Per Una, Limited Collection and Autograph, with each benefiting from their own distinctive backdrop. It comes after shoppers complained the stores were difficult to shop in.
Mr Bolland is also planning on turning the stores labels into “proper brands”.
Sainsbury’s is set to report another robust trading performance on Wednesday despite competition in the supermarket sector having stepped up a gear in recent weeks.
Tesco upped the ante in the supermarket price war when it launched its £500 million Big Price Drop campaign to reduce the cost of 3,000 staple items in a bid to revive its flagging sales.
Asda responded by offering customers £5 off their next shop when they spend £40 check its price guarantee online.
And Sainsbury’s joined the fray by rolling out its Brand Match scheme, which gives shoppers a coupon to reimburse them if their shop cost more than it would have done at Tesco or Asda.
The promotional campaigns of the supermarket happened too late to have a significant impact on Sainsbury’s results for the half-year to October 1, but analysts will be looking for any indication that recent trading has been affected.
Sainsbury’s has reported that like-for-like sales excluding fuel rose 1.9 per cent in the half year to October 1, as it benefited from the relaunch of its own label ranges, including its Taste The Difference premium range last year and more recently its By Sainsbury’s products.
It was also boosted by strong fashion sales and growing trade through its Sainsbury’s Local convenience stores.
Its feed a family for a week for £50 campaign has struck a chord with consumers and it also recently changed its marketing strapline from Try Something New Today to Live Well For Less as part of a drive to highlight its value for money credentials.
Sainsbury’s has also recently launched a womenswear range designed by television presenter and fashion consultant Gok Wan under the Gok for Tu brand.
The strong trading performance is expected to boost Sainsbury’s underlying profits by 7.5 per cent to £398 million, according to Dave McCarthy, an analyst at Evolution Securities.
But he added that although Sainsbury’s trading performance had been strong, with the lowest margins in the sector, it was the most vulnerable to the increased competition.
Morrisons is set to continue the recent run of solid form that has made it a stockmarket darling when it provides an update on Thursday.
The grocer, which has some 450 stores in the UK, has fared better than its main supermarket rivals in recent months because it sells relatively small amounts of non-food items, which has been hard-hit as consumers tighten their belts.
When it last updated the market, it revealed 2.2 per cent like-for-like increase in the six months to the end of July.
It said longer opening hours, its focus on fresh food and initiatives such as Price Crunch helped draw a record 11.5 million shoppers to its store each week.
Matthew Truman, an analyst at JP Morgan Cazenove, expects it to report like-for-like growth of 2.3 per cent.
The Bradford-based chain is expanding rapidly, particularly in the south, and recently launched its first trial convenience store, called M-Local.
Under new boss Dalton Philips, it has also launched a new range of M Kitchen ready meals with recipes created by chefs such as Bryn Williams, Nigel Haworth and Aldo Zilli. Former England all-rounder Andrew “Freddie” Flintoff stars in a new range of adverts.
Morrisons is also looking at launching on-line after buying web-based retailer Kiddicare for £70 million. It has earmarked £3 billion to allow it to catch up with its rivals online.
In its last update, Morrisons said it grew its food margins despite cut-throat competition and widespread discounting.
Analysts expect it to report 7% growth in underlying profits to £967.8 million in the year to the end of January.
It has been linked with a potential £1.5 billion bid for Iceland, which would more than double its size.
Heavy discounting at Primark is expected to have taken its toll on the value fashion chain’s profits in the year to September.
The retailer, which has 154 stores in the UK, will report a 14 per cent increase in sales to £1.6 billion and a 20 per cent slide in underlying earnings to £157 million, according to analysts at Exane BNP Paribas.
Primark, which also has stores in Ireland, Spain, the Netherlands, Portugal, Germany and Belgium, saw like-for-like sales increase 3 per cent in the year but warned it rolled out a higher level of price cuts to get customers spending.
The high street has come under increased pressure as household incomes are squeezed by rising inflation, which hit a three-year high in September, and wage growth fails to keep up.
Meanwhile, parent company Associated British Foods is expected to report broadly flat profits for the year of around £820 million, as its food division, which owns Twinings, Ovaltine and Kingsmill, offsets declines at Primark.
Graham Jones, an analyst at broker Panmure Gordon, believes Primark could help lift AB Foods overall performance next year with an increase in sales, 10 per cent more space and a fall in cotton prices.
Primark has also started to try to broaden its appeal with the opening of its first ever concession - in a branch of upmarket department store Selfridges.
In its foods division, ingredients have been hit by tough conditions in the European yeast market, though this will be offset by a strong contribution from sugar and better performances from its grocery lines.
Sugar is also tipped to have another good year with prices still high by historical standards and supply in Europe limited.
Halfords is expected to report a fall in profits on Thursday as it puts on more promotions in an attempt to stem sales falls.
Analysts expect Halfords, which has 466 stores, to report that profits fell 20 per cent to £55 million in the six months to September 30.
The company has said gross margins are one percentage point down on a year ago as it cuts prices to drum up trade.
In its last update, the retailer reported a 3.3 per cent fall in car maintenance products in the 13 weeks to September 30, as the soaring cost of fuel forces people out of their cars.
And sat-navs and other car enhancement sales were down 8.8 per cent as consumers cut back on non-essential purchases.
This was partly offset by growing demand for bikes as more people cycle to work and the sport gains popularity amid the success of UK cyclists such as Mark Cavendish, who recently won the World Championships.
Sales of bikes increased 5.7 per cent after it revamped ranges such as Carrera but analysts believe margins were squeezed as it put on more promotions to compete against the supermarkets.
But this was not enough to push Halfords’ sales into positive territory. Overall retail like-for-like sales declined 2.8 per cent in the second quarter, which was worse than a 1.1 per cent fall in the previous three months.
Shares, which have almost halved in the past year, made a slight recovery after its last update was not as bad as many investors had feared.
They were encouraged by stronger sales of its We Fit products, that see it charge extra to install lightbulbs, windscreen wiper blades and batteries onto cars.
Like-for-like sales at its 242-strong Autocentres car mechanics business grew 2.7 per cent, with strong demand for servicing and tyres. But first-half profits at the business, which it bought Nationwide Autocentres in February 2010, will be lower than a year ago.
Scottish and Southern Energy’s is expected to reveal a drop in half-year profits on Wednesday as its most recent price hike came at the end of the period and will have little impact.
Stephen Hunt, analyst at broker UBS, expects interim profits to fall to £274 million from £385.5 million in the six months to September 30 as SSE absorbed the cost of higher wholesale gas prices.
SSE, which owns Swalec in Wales, Scottish Hydro in Scotland and Southern Electric in England, has already warned results this year will be heavily-weighted towards the second half after it introduced price increases on September 14.
The Perth-based firm increased gas prices by an average of 18 per cent and electricity prices by 11 per cent to raise the typical annual dual-fuel bill from £1,094 to £1,265.
Chief executive Ian Marchant said he was sorry to lift bills at a time when customers’ finances were under strain, but the upward pressures on wholesale prices had become too great.
Ofgem has recommended new simplified bills as the first of a series of measures to improve competition in the industry amid concerns over the rising price of energy.
The regulator also suggested average profit per customer in the sector had jumped to £125 from £15 because of the recent price hikes, something SSE was quick to refute.