Investors to focus on retail sector in UK

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UK investors will be focused on the retail sector this week as some major names from the high street are due to post trading updates or results.

Sainsbury’s will set aside speculation about its future ownership when it posts sales figures for the most recent trading quarter on Wednesday.

The resurgent retailer is up against toughening comparatives with a year ago, but should still post sales growth in the region of 5% to 5.5%, according to analysts at Citigroup.

They point to recent evidence from TNS market share data, which suggested continued strong sales through the fourth quarter.

Whatever happens on Wednesday, shares are unlikely to be affected as investors continue to focus on the interest of a private equity consortium led by CVC.

Citigroup added: “Should the bid not materialise, then the company needs to ensure it has not been too distracted and that sales remain on track. We still expect to see significant profit improvement in the second half of 2006/07.”

Across the financial year, Citigroup is looking for profits of £359.8m (€531m), against £267m (€394m) a year earlier.

It also thinks that Sainsbury’s can expect an approach from Wal-Mart owned rival Asda if the private equity consortium makes a move.

The investment house said Asda would need to win over the Competition Commission but believed that such a proposal had a “reasonable chance” of success.

Retail group Kingfisher is set to report a second year of falling profits as it counts the cost of tough trading conditions for its B&Q business.

A major refit programme has been initiated in an attempt to reverse the declining trend, but in the meantime the resulting higher investment costs will add to the pressure on profitability on Thursday.

Charles Stanley stockbrokers is looking for pre-tax profits of £397m (€586m) in the year to February 3, against £447m (€659m) a year earlier.

There is some comfort for investors, however, as recent sales figures showed B&Q’s like-for-like sales finally returning to positive territory during the fourth quarter. While that was against weak comparatives, there was the additional boost of improved trends on margins.

Kingfisher said its first quarter of sales growth in two years came as a result of stronger demand for kitchen and bathroom ranges, as well as less promotional activity than a year earlier.

Proving that life in retail is rarely straight forward, Kingfisher’s most recent trading statement offset the UK progress by reporting flat sales growth at Castorama amid continued price pressures in France, particularly from the other major DIY retailer in France, Leroy Merlin.

In terms of its new look in the UK, Kingfisher said last month that results from three large new format stores opened last summer continued to be encouraging. The second phase of eight revamps has just been completed, while a further eight are due to be in operation by Easter.

The sites devote more space to showroom displays of complete kitchens and bathrooms as the chain looks to get away from aisle-based layouts.

High street retailer Woolworths had some good news recently with the win of a major wholesale contract, which is expected to add around £250m (€369m) to full year sales.

But this contract came too late to help boost 2006 profits, which are not set to reach anywhere near the £57.7m (€85m) posted the previous year.

The group has been suffering the same fate as struggling high street rival HMV amid increased competition and changing consumer buying habits.

Analysts note that with HMV recently issuing its second profits warning since the start of the year and reporting a further note of caution on CD and DVD sales, life for Woolworths is likely to have remained challenging.

Consensus forecasts have been pegged at around £23m (€34m) for 2006, with some analysts upping expectations for the forthcoming year following Woolworths’ announcement its wholesale arm EUK had secured a three-year deal to supply Virgin Retail with entertainment products.

High street sales are not expected to have picked up dramatically from the group’s dismal Christmas trading, which saw like-for-like sales fall 4.6% in the six weeks to January 13 following an 18 week run of sales being down 6.5%.

Its sales troubles were not helped by the collapse of Music Zone, a customer of its wholesale arm, which could see it lose between £2m (€2.9m) and £4m (€5.9m).

Cairn Energy’s full-year results on Tuesday will represent a turning point for the group after the flotation of its Indian business, Cairn India, and the current handing back of some of the proceeds to shareholders.

Cairn has kept a 69% interest in Cairn India, the part of the business that propelled the company into the FTSE 100 Index following a string of headline discoveries in the Rajasthan area.

The newly-listed company has so far received a cool reception on the Bombay Stock Exchange, which analysts put down to general market weakness and some specific pipeline and exploration issues faced by Cairn.

As well as the Indian operation, Cairn will have an exploration and production arm focused on the group’s remaining assets in Bangladesh, Nepal and Northern India. It will also look for new material growth opportunities.

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