UK markets: Attention on retail sector

Investors in the UK will be paying close attention to the retail sector this week as a spate of high street names release updates and official sales figures are published.

Heavyweight drug giants GlaxoSmithKline and AstraZeneca are also scheduled to update the City.

Analysts will be bracing themselves for bad news when supermarket chain Safeway updates the City on how it is coping with the intense competition in the food retail sector on Tuesday.

Some expect they may have to lower forecasts for full-year profits after the second-quarter update, with fears like-for-like sales growth may have slowed to just 1% from 3% in the first quarter.

Speculation of a bid from US giant Wal-Mart has been the only rallying point for Safeway’s shares of late and chief executive Carlos Criado-Perez will have to come up with reassuring comments to steady investors’ nerves.

Clothing retailers have suffered mixed fortunes in recent months and discount group Matalan will reveal if it is coping with slower growth in the sector when reporting interim results on Wednesday.

The group posted like-for-like sales growth of 5.7% for the first 17 weeks at the end of June and fund manager Gerrard believes this may come in at just 4% for the first half as a whole.

Pre-tax profits are expected to climb 14% to £56.3m but new chief executive Paul Mason will need to be optimistic about current trading and the margin, which may come under pressure from higher costs.

Drugs giant GlaxoSmithKline should leave investors in good spirits on Wednesday by serving up third-quarter pre-tax profits of £1.5 billion, up from £1.36bn in the same period a year ago.

Sales growth is expected to be around 4%, with an 8% jump at constant exchange rates, given the resilience its key antibiotic Augmentin is showing to recent competition from generic producers.

US authorities have approved the launch of Glaxo’s twice-a-day pill for diabetes, Avandamet, and news on the health of other products in the group’s pipeline will be eagerly awaited.

News on the state of current trading will be the centre of interest when department store group Debenhams presents full-year results to the City on Tuesday.

Analysts reduced profit forecasts after a trading statement in July showed margins were coming under pressure as promotional activity was stepped up to pull in the punters.

Any sign that like-for-like sales have slowed from the 6% reported three months ago could lead to further speculation of lower margins as prices are cut to reduce stocks. Profits are expected to be £155m, up 6%.

AstraZeneca received a boost recently after a US court’s unexpected decision to curb generic copies of its blockbuster ulcer drug Prilosec.

Shares in the group have bounced in recent weeks and investors will be keen for more good news, particularly regarding sales and profits forecasts for 2002 and 2003, when the Anglo-Swedish firm posts third-quarter figures on Thursday.

Sales are expected to have increased by around 10% but profits growth could be held back by research and developments costs for cardiovascular drug Crestor and cancer treatment Iressa.

Pre-tax profits are forecast to rise from £672m to £685.2m.

This week will be a busy time for economic updates and investors will look closely for any sign of weakness in the UK recovery.

Conditions on the high-street will be closely analysed on Thursday when retail sales figures for September are published.

Most City experts are expecting them to be flat following August’s 0.6% spike and a number of retailers have recently blamed the unseasonable warm weather for slower sales during the month.

Minutes from the Monetary Policy Committee on Wednesday will explain the Bank of England’s decision to keep interest rates on hold for the eleventh month in a row while on Friday, the preliminary estimate of GDP in the third-quarter is released.

Fund manager Gerrard is forecasting a gain of around 0.7% over the previous three-month period.