The Week Ahead: US PCE, eurozone inflation; B&M, Nike results

Inflation is in the spotlight again, with the US PCE reading for May due on Thursday and the eurozone’s CPI estimate for June set to be released on Friday. 

Retail and consumer goods are the themes of the week’s corporate earnings, with B&M, AO World, Boots owner Walgreens, Nike and Constellation Brands slated to announce their latest results. 

OUR TOP THREE EVENTS FOR 27 JUNE - 1 JULY:

Wednesday – B&M European Retail Q1 results 

Shares in discount retailer B&M slipped to a two-year low in mid-June after it reported that full-year revenue fell 2.7% to £4.67bn, as profits before tax came in flat year-on-year at £525m. However, on a two-year basis revenue was up 22.5%. The dividend fell to 16.5p, though this was in addition to the special dividend of £250m paid in January. 

The outlook also troubled investors. Like-for-like sales in the first eight weeks of the company’s current fiscal year were down 13.2%, with management warning that trading patterns were likely to remain unpredictable going forward as consumers prioritise spending on low-margin essentials. As a result, bosses expect the EBITDA margin to fall by between 70 and 130 basis points, while remaining higher than pre-pandemic levels. 

In the last two weeks the shares have risen slightly, buoyed by broker comments that B&M’s position as a popular discount retailer could be a boon as shoppers look to save money amid high inflation.

Thursday – US PCE inflation (May)

The personal consumption expenditures (PCE) price index, a key measure of US inflation, increased 6.3% in the year to April, down from 6.6% in March. Meanwhile, the so-called core PCE price index, which excludes food and energy costs and is the Federal Reserve’s preferred inflation gauge, rose 4.9% in the year to April, also marking a slowdown from the March figure of 5.2%. It was the second successive monthly decline in core PCE since the February high of 5.3%. 

Consensus estimates suggest that core PCE fell to 4.8% in May. If this forecast for a further slowdown proves correct, it could prompt markets to reassess the likely scale and timing of the Fed’s plans for further interest rate hikes beyond July. 

The Fed raised interest rates by 75 basis points earlier this month after the US consumer price index (CPI) increased 8.6% in the year to May, up from 8.3% in April. The central bank’s decisive action on interest rates – it was the largest rate hike since 1994, and the third increase this year – suggests that policymakers are eager to rein in soaring prices and manage inflation expectations. Their stance seems to be working. While the increase in CPI in May was unwelcome, there are signs that US inflation may be nearing its peak, as recent readings of the producer price index (PPI) have shown price pressures beginning to ease. 

Friday – EU flash CPI (June)

Although Eurozone inflation is running at 8.1%, the European Central Bank has not yet embarked on its own rate-hiking cycle. The upcoming flash CPI reading for June – which is expected to show that inflation rose to 8.3% across the bloc – will focus attention on the ECB’s July meeting. 

The ECB has said it intends to raise interest rates by a quarter of a percentage point in July, followed by further hikes later in the year. But with core consumer prices up 3.8% and interest rates still at a record low of -0.5%, calls for the ECB to be bold and raise rates by more than 25 basis points next month will get louder if, as expected, the CPI figure for June points to a further rise in inflation. 

Rising food and energy prices continue to make up the bulk of the upward pressure on consumer budgets. And with producer prices in several eurozone countries growing at well above 30%, consumer prices seem set to rise even higher, especially with the euro having weakened against the US dollar. The value of €1 has fallen from $1.14 at the start of this year to just $1.05 on 23 June. 

MORE KEY EVENTS (27 JUNE – 1 JULY):

Monday 27 June

Nike Q4 results

After reaching a new record high in November, the Nike share price has declined around 35% so far this year with the sportswear maker struggling to meet demand amid supply chain issues. The shutdown of its Russia and Ukraine operations is likely to have weighed on its Q4 performance. 

In Q3 revenue of $10.87bn generated profits of $1.4bn or $0.87 a share, beating expectations of $0.71 a share. The North American market drove the better-than-expected numbers, while its Vietnam factories are now fully operational again after the Covid-related disruptions of Q2. 

Despite ongoing supply chain disruptions, inventory levels in Q3 were 15% higher than a year ago at $7.7bn. These levels are expected to remain high, even as Nike prioritises selling its products directly to consumers as opposed to wholesalers. 

The company declined to offer an outlook for the rest of the year, citing the uncertainty around events in eastern Europe and China. Performance in the latter is likely to have been affected by recent lockdowns in Shanghai and Beijing. Nike’s Q4 profits are expected to come in at $0.85 a share.

Tuesday 28 June

No major announcements

Wednesday 29 June

US Q1 GDP 

The third and final reading of real gross domestic product in Q1 isn’t expected to add to the sum of our overall knowledge of the US economy. Last month, the second estimate of US GDP in Q1 found that the economy contracted by 1.5%, a slight downward revision on the initial estimate of a 1.4% decrease. The contraction came despite a 3.1% increase in personal consumption, revised upwards from the original estimate of 2.7%. The main reason for the contraction was a big fall in net trade and inventories due to supply chain disruption. 

No substantive changes are expected in this week’s final Q1 GDP reading. But we’ll be looking out for signs of a slowdown in consumption when personal spending data for May are released on 30 June. Consensus estimates suggest that growth in personal spending slowed to 0.7% in May, down from 0.9% in April, as the rising cost of living starts to impact consumer behaviour. The actual figure could miss expectations if recent retail sales figures are any guide. US retail sales decreased 0.3% in May, the first decline this year. 

B&M European Retail Q1 results

See top three events, above

Thursday 30 June

US PCE inflation (May)

See top three events, above

AO World full-year results

Online electrical goods retailer AO World saw a sharp increase in turnover during the pandemic, benefiting from the boom in e-commerce amid Covid-19 restrictions. In late 2020, at the height of the online shopping surge, expectations were for pre-tax profits to be in the region of £43.6m by 2022. Unfortunately for AO World shareholders, the reality has turned out to be rather different, as the pandemic-era boom subsided and consumers returned to the more traditional method of shopping for white goods in-store. 

Various supply chain issues have also affected the business, with the company issuing successive profit warnings over the last few quarters as rising costs and fewer orders clobbered margins. The rising cost of living has also hit its warranties business as shoppers make cutbacks. These factors have contributed to the AO World share price declining more than 30% so far this year.

Full-year revenue is expected to come in at £1.56bn, a 6% decline on last year’s £1.66bn. Looking ahead to the next financial year, revenue estimates have been revised lower following the announcement this month that AO World will pull out of Germany, a move which will incur estimated losses of up to £15m. 

Walgreens Boots Alliance Q3 results

Despite being at the forefront of Covid testing and vaccination efforts in the US, Walgreens has struggled to increase revenues. Since 2019, when annual revenue hit a record $136.87bn, growth has stalled. This is partly because the pandemic forced the closure of its stores. However, estimates suggest that the business may continue to struggle going forward. In Q2 total sales rose 3% to $33.8bn, while profits came in at $883m, or $1.02 a share – slightly below expectations. 

In an attempt to reposition itself as a healthcare company, Walgreens invested $5.2bn in VillageMD, a primary care company that is opening clinics inside Walgreens stores, creating a one-stop shop for patients to pick up prescriptions from their doctors and collect medicine. 

The company has also been looking to spin off its UK operation Boots for a mooted price tag of around £7bn. Earlier this month Apollo Global and Reliance Industries made a joint £5bn bid for Boots. Other parties are rumoured to be interested. 

With markets in their current state of turmoil, the obstacles to a deal at the hoped-for price are high. The UK government might also want a say, given the importance of Boots’ 2,200 branches to the UK’s health infrastructure. Any potential branch closures would be controversial if a deal goes through. WBA’s Q3 profits are expected to come in at $0.93 a share.   

Constellation Brands Q1 results

Shares in drinks supplier Constellation Brands reached a new record high after the company announced its Q4 and full-year results back in April. That was despite losses at its marijuana-producing subsidiary Canopy Growth. 

Q4 sales rose to $2.1bn, lifting full-year revenue to $8.82bn, while profits came in ahead of forecasts at $2.37 a share. Constellation’s beer division was the leading revenue driver with 11% net sales growth, while the wine and spirits business grew 9%. Operating margins in both businesses improved significantly due to lower marketing spend. 

For the new fiscal year, the maker of Corona beer says it expects to generate between $11.20 and $11.50 in EPS, with net sales growth in the beer segment expected to come in at 7-9%, while wine and spirits are expected to decline 1-3%. Capital expenditure is forecast to rise by $1.4bn, with the bulk of that going towards a new brewery in Veracruz, Mexico. Profits are expected to come in at $2.56 a share.

Friday 1 July 

EU CPI (June)

See top three events, above

Global manufacturing PMIs (June)

Rising energy prices, supply chain disruptions and lockdowns in China have constrained economic activity globally over the last few months. Yet despite these headwinds, surveys of purchasing managers have suggested that manufacturing activity is holding up well, painting a somewhat false narrative. Robust purchasing managers’ index (PMI) data are particularly at odds with reality in areas such as auto production and sales, which have been hit by shortages of parts.

Expectations are for manufacturing activity to weaken in Germany, France, Italy, Spain and the US. In the latter, recent surveys have suggested a drop in activity. In China, Covid-related lockdowns and restrictions have also dampened manufacturing activity, but operations there appear to be returning to something like normality.

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Selected company results

Company announcements are subject to change. All the events listed above were correct at the time of writing.

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