UK retailers seek to restore confidence

A shortened trading week will see Halfords and Mothercare publish updates, while publisher Bloomsbury will look to restore confidence after its profits warning in December.

Car and bicycle retailer Halfords is set to confirm that trading has remained strong when it gives a pre-close update on Tuesday.

Analysts at Seymour Pierce suggest there is an “outside chance” that a suitor could crop up to make an approach for Halfords, but even without any potential bid, the group’s shares are marked down as an “outperform”.

Trading was said to be in line with expectations when the group last gave a performance update and this is forecast to improve further.

Richard Ratner, retail analyst at Seymour Pierce, said full-year profits may come in some £1.5 million ahead of the £75.8 million he already expects.

He said: “It is our view that Halfords has continued to trade well. There is also an outside chance that a predator could appear.”

Halfords reported pre-tax profits of £43.5 million in the six months to September 29 after a 9.3% rise in sales to £369.2 million.

The group, which was bought by CVC Capital Partners from Boots nearly five years ago, has seen its share price rise steadily since last summer, hitting a peak of more than 390p earlier this year.

Mr Ratner believes there is further upside to come and has set a target price of 408p.

The housing market is holding up better than expected this year, which should give a fillip to mortgage bank Northern Rock, due to update the market on its performance so far this year on Monday.

While mortgage approvals are slightly down on a six month average, the slump so often predicted has not transpired yet.

Northern Rock will also benefit from a stellar arrears record that is half that of the industry average – a feat in the current climate of soaring consumer debt levels.

It is a stock favoured by Merrill Lynch analysts, particularly as the bank “has stable margins, improving cost efficiencies, strong credit quality and capital advantages”.

Northern Rock posted better-than-expected profits for 2006 despite fears the recent interest rate rises could have affected its business. Underlying profits were up 16.5% on 2005 at £587.7 million.

The group said it was confident about the market for 2007, with residential lending expected to be marginally up again, although the market will be looking out in next week’s news for signs of weakening with another interest rate rise since its last results and one widely mooted in the pipeline before the summer.

Investors will be looking to see if Bay Trading owner Alexon Group has experienced a pick-up in trading since January after it saw sales fall in the 22 weeks to December 30.

The group, which is reporting its results for the year to January 31 on Monday, said at the time that like-for-like sales had dropped by 4% in the period, with margins slipping 1% as it was forced to cut prices in an attempt to revive trade.

The margins pressure was felt most at its Alexon Brands division after poor performing ranges at Alex & Co and Minuet resulted in action to clear surplus stock.

The division saw like-for-like sales fall 5%, even though Eastex and Dash performed well. Bay Trading fared a little better, with sales down 2% following solid menswear sales.

The company, which operates 363 UK shops, including 150 under the Bay Trading brand, sold its Dolcis shoe business in December after the division reported half-year losses of £2.4 million in the summer.

In February, Alexon informed the market that it had terminated talks regarding a possible offer for the company after it received an indicative approach at the start of the same month. The group said the approach undervalued the business.

Philip Dorgan of Panmure Gordon is predicting pre-tax profits of between £8.3 million to £8.5 million, but said he was not confident that the group can avoid further problems.

Babycare retailer Mothercare is set to update the market on its fourth quarter trading performance on Wednesday, while investors will also be looking for further news on the proposed £85 million acquisition of Early Learning Centre-owner Chelsea Stores.

In January, the group reported that sales had grown by 5.3% for the 42 weeks to January 12 driven by a strong international performance.

However, in the UK sales were only up 1.1% in the same period, which included heavy pre-Christmas markdowns following a difficult trading period during November.

The news saw Investec analysts cut profits expectations for the year to £21.3 million.

However, the company said that it had seen a revival in fortunes during the final months of 2006 following an overhaul of its UK high street operation combined with a solid performance at its home shopping and online arm.

The group celebrated the end of a three-year recovery programme at the end of last year, which was launched after Mothercare made losses of £24.8 million in 2003, and traders will be looking for evidence of growth since the new year.

It has been a tough year for Harry Potter publisher Bloomsbury resulting in a substantial profit warning in December and a subsequent marked reduction in analysts’ forecasts for the period.

The company warned at the time that lower than expected pre-Christmas sales combined with delays in reference rights sales budgeted for 2006 would see profits before tax for the year ending December 31 fall to around £5 million.

This compares to underlying profits of £20 million in the previous year, after performance was boosted by record-breaking sales of the hard back edition of Harry Potter and the Half Blood Prince.

During 2006, the company did benefit from strong sales of Sheila Hancock’s The Two of Us, and traders will be looking to see if Bloomsbury secured additional rights sales before the close of the year when it publishes its results on Tuesday.

In general, the UK has experienced a weak book market in 2006, with retailers, such as Ottakar’s, Waterstone’s and Borders, suffering from deteriorating sales.

But Bloomsbury is largely credited as having a strong stable of authors on its books, including Khaled Hosseini – author of the Kite Runner – and The English Patient’s Michael Ondaatje.

Analysts have also said that the group’s history of identifying new authors should also stand it in good stead for the future.

Following on from a disappointing set of results from Woolworths last week, entertainment retailer ChoicesUK is set to outline the impact of a declining CD and DVD market when it publishes its interim results on Tuesday.

Investors will be looking for any strategic plans for the group’s retail business after it said in January it would consider off-loading some of its stores.

The news came as the group said it was anxious to prevent its poor-performing retail division from detracting value from the rest of its business. In addition to its stores, ChoicesUK also operates a mail order division and supplies DVDs and games to convenience stores.

The group, which operates 192 high street outlets, reported record sales for the eight weeks to January 13, up 15% over the same period last year, following strong growth at its internet and mail order divisions.

However, this was not enough to offset losses from earlier in the year after the World Cup led to a decrease in demand at both its retail and rental divisions.

At the time analysts said the group’s performance had been disappointing, with news that the firm was set to cut costs by a further £500,000 a year on top of the £3 million annual savings sounding alarm bells to investors.