There is a UK theme to the week ahead, with chancellor Rishi Sunak set to make his spring statement in the House of Commons on Wednesday – the same day that February’s CPI reading is expected to show a further rise in UK inflation. Sunak is under pressure to help ease a cost-of-living crisis that has been exacerbated by the war in Ukraine, as households grapple with surging energy bills, rising food prices and an imminent national insurance hike.
As for corporate updates, British retailer Next is due to announce preliminary full-year results on Thursday, as its share price toils despite the company’s upgraded profit forecasts. We also preview results from Nike and Saga, among other companies.
OUR TOP THREE EVENTS FOR 21-25 MARCH:
UK spring statement – Wednesday
With the UK facing a cost-of-living crisis and inflation heading back to levels last seen in the 1990s, it beggars belief that the chancellor of the exchequer Rishi Sunak plans to go ahead with a national insurance rise for employers and workers next month.
While there is clearly an argument for raising taxes to pay for the costs of the Covid crisis, the timing is unhelpful. The decision to increase national insurance contributions (NICs) was taken last autumn, when the economic landscape was very different. In most walks of life, when the facts change, people change their minds. Surely this should hold true for Sunak and his team. However, all the signs are that he will not back down. On top of higher NICs, rising inflation – which is expected to increase further in the coming months – will tighten the squeeze on household incomes, slowing the UK economy’s recovery. As for businesses, although the government has gone to great lengths to support them during a tough couple of years, there appears little likelihood of a reprieve this time around.
What else can we expect from the announcement? Alongside the office for budget responsibility’s latest inflation and growth forecasts for the UK economy, the chancellor will explain how he plans to navigate the challenges of rising prices for food, raw materials and energy. While Sunak has already outlined measures to alleviate some cost increases, these cover families, not businesses. Calls from employers to reform business rates are likely to go unanswered, although we might see an extension to the super deduction which is due to expire at the end of 2023. Some economists would like to see the policy expanded to include small businesses. We might also hear about a defence spending review, in response to Russia’s war on Ukraine.
UK CPI inflation (February) – Wednesday
Although the Bank of England raised interest rates by a quarter point to 0.75% on Thursday in a bid to curb rising prices, it warned that inflation is likely to continue to move higher in the coming months. That will tighten the cost-of-living squeeze, especially as earnings growth still lags behind increases in the consumer price index (CPI) measure of inflation, with that gap unlikely to narrow in the coming months, despite the above-inflation pay rises announced by some retailers in the last few months.
In January, UK CPI rose to a new 30-year high of 5.5%, while the retail price index (RPI) rose to 7.8%. Worryingly, peak inflation still appears some way off, as the more forward-looking producer price index (PPI) continued to rise, with output prices coming in at their highest levels since 2008 at 9.9%, although input price growth slowed to 13.6%, down from 13.8%. Core CPI, which strips out food and energy costs, climbed to 4.4%, up from 4.2% in December, indicating that underlying inflation is still on the rise.
Given that the Bank of England said that it expects headline CPI to peak at 7.25% by April, we could see the headline number for February approach 6%. However, there is now a very real concern that surging commodity prices, exacerbated by Russia’s war in Ukraine, could push CPI towards 10% by the summer.
Next full-year results – Thursday
The near-20% decline in the Next share price over the last six months appears a rather odd market reaction to a retailer that upgraded its profit forecasts several times for the financial year ending January 2022. This month, the shares hit their lowest level since October 2020.
It’s true that costs have increased due to investment in upscaling warehouse operations and picking capacity, but this should improve online services and delivery times. Moreover, sales growth has remained steady. In Q3 bosses were concerned about the effect that lockdowns before or after Christmas might have on the business, with a 20% decline in sales being the worst of three possible scenarios, according to the company. These concerns turned out to be largely unfounded, despite the plan B restrictions in England. The Q4 numbers showed full-price sales to 25 December rising 20%, while full-year profit guidance was upgraded to £822m. Next also forecast that profits this year could rise to £860m. The company declared a special dividend of 160p per share to be paid at the end of January.
Although outlook concerns in January appear to have subsided, management is likely to remain cautious on guidance, as it has been for the last nine months.
MORE KEY EVENTS (21-25 MARCH):
Monday 21 March
Nike Q3 results
Since reporting in Q2 Nike shares have gone on a big slide despite beating expectations on both sales and profits. Revenues came in better than expected, at $11.36bn, albeit below the Q1 level of $12.2bn. Direct sales also continued to improve, rising 9% to $4.7bn, cementing Nike’s reputation as a retailer in its own right. Profits came in at $0.83 a share, while gross margins improved to 45.9%. The reopening of its Vietnam factories saw output recover to 80% of pre-shutdown levels, raising expectations of a much-improved performance in Q3. These expectations need to be tempered given the slowdown being seen in China since the start of the year, while the decision to suspend its online and retail operations in Russia is also likely to have an impact. Profits are expected to come in at $0.73 a share.
Adobe Q1 results
Adobe shares have fallen sharply since the start of this year, despite the company posting record revenues and profits in 2021. In Q4 the company reported revenue of $4.11bn, pushing total fiscal revenue to $15.79bn, a rise of 23% year-on-year. The company saw decent growth in both of its business segments, Digital Media saw a rise of 25%, while creative revenue rose by 23%. The catalyst for the share price weakness appears to have been disappointment over its guidance for Q1 and the rest of the year, with the company predicting a sharp slowdown in revenue growth. For Q1 the company said it expected to see revenues of $4.23bn, and EPS of $3.35 a share, while on a full-year basis revenues are expected to rise to $17.9bn.
Tuesday 22 March
Kingfisher full-year results
Since Kingfisher, which owns brands such as B&Q and Screwfix, reported its half-year numbers back in September the shares have undergone a significant decline, hitting an 18-month low earlier this month. On the face of it the numbers were good, sales rising 22.2% to £7.1bn and profits rising to £677m, but it would appear that concerns about slowing sales growth saw the shares come under pressure on the premise that the second half of the year was likely to be weaker than expected, although Screwfix has continued to stand out.
Management also pointed to higher costs saying that they were likely to persist in the second half. In Q3 concerns about slowing sales appeared to be borne out, although bosses were keen to point out that they still expected full-year adjusted pre-tax profits to come in at the higher end of £910m to £950m. Group sales in Q3 were down by 2.4% on a constant currency basis compared to 2021, but were still up by 15% compared to 2020.
The 2021 comparatives appear to have weighed much heavier on the share prices of lockdown winners like Kingfisher, though there comes a time when investors must begin to question whether the falls are overdone. Of all its businesses, Screwfix has continued to stand out and was the only part of the business in the UK and France to report any sales growth in Q3. In Eastern Europe, Poland and Romania saw decent growth of 4.9% and 17.2%, respectively.
Oxford Nanopore Technologies full-year results
Back in September Oxford Nanopore, a DNA sequencing company, raised £350m at an offer price of 425p, with the shares rising sharply to more than 700p by the end of last year. The company also supplies rapid Covid-19 tests to the NHS and has partnered with Oracle to explore new solutions using genomic sequencing which would run on its cloud infrastructure on a global scale. Since the start of this year the share price has cooled, slipping below 400p at the beginning of March. In January the company upgraded its guidance saying it expected total revenue of £126m this year, compared to £113.9m in 2020.
Wednesday 23 March
UK spring statement, CPI inflation (see top three events, above)
Saga full-year results
Even before the pandemic hit its cruise ship and travel business Saga’s share price had been in decline. Having listed in 2014, the shares have plunged since 2016, dropping to record lows in October 2020. The shares briefly recovered to 460p in June last year, but slipped back after the easing of travel restrictions was delayed. In its financial year 2021, the company posted a full-year pre-tax loss of £61.2m which was primarily the result of a £59.8m goodwill impairment in the first half.
Saga’s insurance business has been the one area that has performed as expected. In its most recent trading update back in January the company said that motor and home policies were 1% ahead of last year, with a margin per policy of £75, and claims in line with expectations. On the plus side we could see a reserve release due to lower-than-expected claims in 2020 due to fewer people driving. The travel business was still showing signs of a modest improvement with a load factor of 68%, with losses expected to narrow to between £45m and £50m. For 2022-23 the outlook appears more positive, with 86% load factor bookings for the first half and 73% for the full year. Saga says it expects to post a small underlying loss before tax for this fiscal year, but that it hopes to return to profit in the new fiscal year as demand for travel and cruises recovers to more normal levels.
Thursday 24 March
Germany, France flash PMIs (March)
After a weak finish to 2021, economic activity in Germany picked up in the first two months of this year, with both manufacturing and services activity performing well. This doesn’t quite chime with some of the industrial production and factory gate prices, however. And with input costs surging since the end of last year, one has to question how reliable some of the recent PMI data actually is. The latest factory gate prices for January showed a record rise of 25% year-on-year, while the corresponding measure in Italy hit 41% in February.
This direction of travel is expected to continue for German as well as French factory gate prices, and is likely to prompt shutdowns in some of Germany’s key industries, whose key export markets are in China, as well as Russia. Its Chinese export market appears to be showing signs of slowing while its exports to Russia have been blocked by sanctions. It’s been a similar trend in France – an end-of-year slowdown followed by a pick-up at the start of 2022. Expectations for March are for Germany's manufacturing PMI reading to come in at 55, down from 58.4, with services at 54.3, down from 55.8. France’s manufacturing PMI is expected to slip to 55.1 from 57.2, with services steady at 55.
Next full-year results (see top three events, above)
Darden Restaurants Q3 results
Like most popular restaurant chains, Darden – owner of the Olive Garden and Longhorn Steakhouse, which rank as some of the most ubiquitous eateries in the US – has been able to offset the effects of lockdowns by offering a takeaway service and slimming down its menu. This helped to reduce payroll costs. To cut costs further, the company embarked on a $35m restructuring programme to prepare for the reduced footfall that is expected to be the norm going forward, as it looks to lower its debt load.
Over the last two quarters the restaurant chain has managed to shrug off the effects of higher costs, despite having to pay higher salaries to attract staff. That hasn’t helped the share price which has slid back in recent weeks. The company followed up on a solid first quarter with Q2 revenues of $2.27bn, and profits of $1.48 a share. Darden also raised its forecasts for full-year profits to between $7.35 and $7.60 a share, while full-year sales are expected to come in between $9.55bn and $9.7bn. That’s an awful lot of breadsticks and pasta. Profits for Q3 are expected to come in at $2.13 a share.
Friday 25 March
UK retail sales (February)
UK consumer spending grew 1.9% in January, according to data from the Office for National Statistics (ONS). A decent rebound after the 4% contraction in December, the uptick was driven by a recovery in sales of fuel, household goods and furniture. High street sales also improved. The numbers indicate that while demand appears to have picked up, the retail sector still has to confront significant challenges in the months ahead, as prices rise and disposable incomes shrink.
This squeeze hasn’t yet been reflected in the British Retail Consortium (BRC) retail sales numbers, which showed that total sales rose by 6.7% in February, as the removal of plan B restrictions at the end of January buoyed spending. Like-for-like sales grew 2.7% versus the year-ago period, when the UK was one month into its third Covid lockdown. Sales of clothing and footwear increased in February, while food sales slowed. The latest data from Barclaycard show consumers spent 13.7% more in February this year than they did in February 2020. Expectations are for ONS data to show February retail sales growth of 0.8%.
Index dividend schedule
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Selected company results
|MONDAY 21 MARCH||RESULTS|
|Photo-Me International (UK)||Full-year|
|Teka Bio (US)||Q4|
|TUESDAY 22 MARCH||RESULTS|
|iMedia Brands (US)||Q4|
|Oxford Nanopore Technologies (UK)||Full-year|
|WEDNESDAY 23 MARCH||RESULTS|
|General Mills (US)||Q3|
|Oxford Industries (US)||Q4|
|THURSDAY 24 MARCH||RESULTS|
|Darden Restaurants (US)||Q3|
|Harvest Oil & Gas (US)||Q2|
|FRIDAY 25 MARCH||RESULTS|
|Privia Health (US)||Q4|
Company announcements are subject to change. All the events listed above were correct at the time of writing.
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