The Week Ahead: US jobs; Tesco, JD Wetherspoon results

Here's our pick of the top three economic and company events in the week commencing Monday 2 October:

Tesco half-year results

Wed 4 Oct: Since pushing up to 12-month highs in May, the Tesco share price has slipped back. In August it retested its March lows, which acted as support for the modest rebound since then. Faced with rising costs, Tesco – like rival supermarket chains – has come under criticism from politicians for allegedly profiteering during the cost of living crisis. But perhaps the critics are simply keen to deflect the blame away from their own failure to contain inflation. The UK’s supermarkets are by no means perfect, but competition from the likes of Aldi and Lidl serves to keep the grocery market reasonably honest. In Q1, Tesco announced that like-for-like sales in its UK stores increased 9% to £10.8bn, with group retail revenue increasing by 8.2% to £14.83bn. Booker, its wholesale business, also continued to perform well, with like-for-like sales there increasing by 8% to £2.27bn. Fuel was the only area in which like-for-like sales decreased as sales here fell 15.7% to £1.7bn. Looking ahead, Tesco remained optimistic that it can deliver the same level of adjusted operating profit as last year, despite the ongoing pressure on its margins. The retailer also guided that retail free cash flow will remain in the region of £1.4bn to £1.8bn. In September the UK’s leading supermarket by market share announced it was freezing the price of up to 1,000 items until next year as it looks to maintain its lead over its rivals. Supermarkets are also contending with a spike in shoplifting, which could lead to increased spending on security. For the first half of its fiscal year, Tesco’s UK revenue is forecast to increase to £25.4bn.

US non-farm payrolls (September)

Fri 6 Oct: If Congress fails to provide funding for the fiscal year beginning 1 October, a US government shutdown could ensue, potentially delaying the release of the latest jobs data beyond the scheduled date of 6 October. Whenever the report comes out, it is likely to shape the US Federal Reserve's thinking on interest rates. As expected, the Fed kept interest rates unchanged on 20 September, but left open the possibility of further hikes this year, with rate decisions pencilled in for 1 November and 13 December. The September rate hold, while unanimous, had a hawkish bias as Fed officials now see the median Fed funds target rate in 2024 at 5.1%, up from previous forecasts of 4.6%. Their end-of-year target rate was left at 5.6%. The Fed’s shift in outlook is mainly due to the strength of the US economy, which has helped reinforce policymakers’ “higher for longer” message. As interest rate projections and the US dollar edge higher, and with another rate rise this year looking an each-way bet, the US economy is entering dangerous territory. For now, the economy is holding up well. However, with recent rate increases yet to filter down, we could see an end-of-year slowdown in the labour market. The August jobs report showed that the economy added 187,000 non-farm payrolls, beating economists’ expectations of 170,000, while the unemployment rate rose from 3.5% to 3.8%. The labour force participation rate increased from 62.6% to 62.8%, its highest level since the pandemic. The June and July payrolls figures were revised downwards, with jobs growth in July lowered to 157,000 from an original estimate of 187,000, while the June figure was cut to 105,000 from 209,000. Growth in average hourly earnings softened to 4.3%, pointing to an easing of wage-price pressures. However, inflation may be picking up again, driven by higher fuel prices. That could lead to strikes and renewed calls for higher wages. The upcoming jobs report is expected to show that the economy added 155,000 payrolls in September, while unemployment may have slipped to 3.7%. Keep an eye on earnings growth for signs of stickiness – a “sticky” reading could strengthen the case for one more rate rise this year, especially if core inflation also remains persistent.  

JD Wetherspoon full-year results

Fri 6 Oct: Wetherspoon shares surged to one-month highs in July after the pub owner said that trading had been better than expected as like-for-like sales soared 11% in the first quarter compared to the year-ago period. Compared to its previous trading year, like-for-like sales were up 11.5% in Q4 to date, and up 12.9% year to date. The upcoming announcement is expected to show that full-year revenue rose to £1.9bn, with a return to profit of £29m. At the July trading update Wetherspoon said it had reduced net debt to £688m, while investing £116m in new pubs and £82m in freehold reversions, as well as raising equity of £240m. The company added that the waivers on their banking covenants would no longer be required at the end of the current quarter.  

Here's our pick of the rest of the week's major economic and company events:

Boohoo Group half-year results

Tue 3 Oct: The Boohoo share price has been on a roller-coaster, rallying strongly from where it was a year ago to highs of 60p in April this year. Since then, though, the shares have slipped back towards the September 2022 lows as the online clothing retailer reported in May that full-year revenue declined 11% to £1.77bn. That resulted in a loss before tax of £90.7m, while gross margin fell to 50.6%. On the plus side, revenue was still higher than in 2021. The online retailer said it had reduced its excess inventory while taking steps to improve oversight of its suppliers, which had pushed up costs. Management also said they had consolidated market share gains in the sector, and expressed optimism that profitability would improve as they look to strengthen the balance sheet.  The upcoming half-year results should offer investors an insight into progress in these areas. Half-year revenue is expected to come in at £774m, with gross margin at around 52.6%. The performance of sector peer Asos hasn’t been encouraging, however. Boohoo’s rival recently reported that Q4 revenue fell by 15%. One notable development of the last six months has been Frasers Group’s acquisition of sizeable stakes in both Asos and Boohoo, with the Boohoo stake currently worth 9.1%. If Boohoo’s soon-to-be-released half-year results disappoint the market, Frasers could seize on any share price weakness to increase their stake.

US JOLTS, ADP jobs reports

Tue 3 Oct, Wed 4 Oct: Usually served up as an appetiser ahead of the main jobs report at the end of the week, these two reports – one based on the job openings and labor turnover survey (JOLTS) and the other published by payroll processing firm ADP – have highlighted the resilience of the US labour market in recent months. The ADP report showed that the US added 177,000 private payrolls in August, falling slightly short of forecasts of 195,000. That miss was somewhat offset by an upwards revision to the July figure, from 324,000 to 371,000. Job vacancies dropped to 8,827,000 in July, down from 9,165,000, reaching the lowest level since March 2021. So, although the US labour market is becoming tighter, the number of vacancies is still well above pre-pandemic levels of just over 7m. This could mean that a significant move higher in the unemployment rate is still a way off.

Services PMIs (September)

Wed 4 Oct: The recent flash purchasing managers’ index (PMI) readings for France, Germany and the UK point to further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup, with the flash services number falling to 43.9 from 46. Germany, on the other hand, saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength. The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its recent meeting, although one suspects it may well have been its last hike. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient.

Imperial Brands Q4 results

Thu 5 Oct: When Imperial Brands reported its half-year numbers back in May, investors responded in a weak fashion, even though “next generation products” (NGP) revenue came in ahead of expectations, rising by 19.8%. Overall half-year revenue rose 0.3% to £15.4bn, while earnings per share rose to 117p from 105.2p the year before. The company said it was on course to meet its full-year guidance, but since then the shares have steadily declined on concerns over slowing volumes. Tobacco continues to make up the bulk of the company’s revenue, while NGP-adjusted losses increased by 33% to £56m. It is the speed of this offset that appears to be driving the weakness in the share price, as well as concerns that governments may crack down on smoking. In September the shares hit their lowest levels in over a year on reports the UK government was considering even stricter restrictions on the sale of tobacco. The plans could see the legal smoking age for cigarettes raised in a way that would mean anyone born after 1 January 2009 would be unable to buy the product legally.

Levi Strauss Q3 results

Thu 5 Oct: When Levi Strauss reported in July, its share price fell sharply after management lowered its full-year guidance, even though the Q2 results were in line with expectations. Revenue was $1.34bn, while profit came in at $0.04 a share. For the rest of the year, Levi lowered the top end of its revenue forecast to 2.5%, down from 3%, due to a slowdown in its wholesale business. It also lowered its forecast for annual profits to between $1.10 and $1.20 a share.

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SELECTED COMPANY RESULTS

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.

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