The Week Ahead: retail sales, UK unemployment; Darktrace, Ocado, Kier results

Read our pick of the top stories to look out for this week (13 to 17 September), and view our key company earnings schedule.

In this week's video, Michael looks back at a mixed week for equity markets, and ahead to this week’s UK unemployment, CPI and retail sales numbers. He also looks at China and US retail sales, as well as the key levels on EUR/USD, GBP/USD, Brent crude, as well as the major indices.

Associated British Foods Q4 results 

MON 13: When Associated British Foods reported its half-year numbers in April, the shares fell sharply due to big losses in the Primark business. Why this was a surprise to investors is a little puzzling. With all of its stores closed and no online operation, sales were bound to suffer. Since then, the shares have failed to recover, hitting an eight-month low in July, despite a recovery in trading that has been largely ahead of expectations in Q3. 

Retail revenue came in more than double in Q3, reaching £1.6bn, while its other businesses also performed well. Sugar revenue saw a big increase to £406m, while agriculture and ingredients also saw decent gains, to £391m and £376m respectively, putting both well ahead of last year. Grocery was the only underperformer, with a decline of 3%, though this was probably down to weaker comparatives, compared to a year ago. The company said it expects net cash for the full year to rise to £1.7bn, and full-year profits to be broadly in line with 2019/20 levels. In a further sign of confidence management, they announced they would be returning £96m of the government’s job retention scheme money, while also proposing an interim dividend of 6.2p per share, at a cost of £49m. 

Ahead of this week’s Q4 numbers, the recent slowdown in consumer spending could be a risk to Associated British Foods’ hopes of meeting its end-of-year profit target. Although, with the share price near its lows this year,  most of the bad news could already be priced in.  

Apple event 

TUE 14: With the Christmas season approaching, the time has come for Apple to set out its stall for what tends to be its most lucrative quarter. It’s likely that the company will be launching a new iPhone, probably the iPhone 13, with some speculation that it could come in pink. Putting to one side the colour of the device, the most interesting questions are likely to be over specification. Will we get a camera, display and chipset update, given that the iPhone 12 has been out nearly a year now? 

There could also be mention of a new iPad, although all these products are likely to be more expensive due to the chip shortages being experienced across the board. The rumours on a new iPad are especially interesting with reports that Apple might be close to launching a new entry-level, ninth-generation tablet with a faster chipset. There is also speculation about an updated Apple Watch and AirPods.  

JD Sports half-year results

TUE 14: One of the FTSE 100 outperformers this year, the shares are up over 25% year-to-date, trading at record highs, with the latest trading update showing that profits before tax were on track to come in at, or above, £550m. This is an impressive performance when set against the fact that the business has continued to expand, with the acquisition of DTLR Villa in the US, and Marketing Investment Group in Central Europe. It also rather jars against the reluctance of the business to return the fiscal help given by the UK government, when most of its peers have done so, and the fact that executive chairman Peter Cowgill has received £4.3m in bonuses. The company did say any decision on returning furlough money would not be taken until there was more certainty around the trading outlook. However, given current circumstances, and the fact that trading is likely to be fairly positive, there seems to be little justification for not returning the money. 

Having boosted the dividend as well as bonuses earlier this year, it looks pretty bad paying these out, as well as bonuses to senior management, while not paying back the furlough money. With net cash at the end of last year of £795.4m, surely they can afford it. The company may also give an update on whether it intends to appeal the latest CMA decision to block its Footasylum acquisition, the logic of which seems more unfathomable with each passing week. 

Ocado Q3 results

TUE 14: It’s not been a great year so far for Ocado shares. Ocado is among the top-10 worst performing FTSE 100 stocks this year, although it’s still well up on where it started 2020, pre-pandemic. That said, it would appear the easy wins for shareholders may be in the rear-view mirror. At the start of February, Ocado’s share price almost put it within touching distance of Tesco, the UK’s number one food retailer, despite full-year revenues that were a mere fraction of Tesco’s £58bn, at £2.33bn. This appears to have prompted a reassessment, with the declines probably down to an expectation that an easing of restrictions and reopening of the UK economy would prompt a slowdown in revenues. 

Ocado has continued to invest in automation, spending £287m to acquire Kindred Systems and Haddington Dynamics at the end of last year, both companies that specialise in robotics manufacture. In April, the company took this further by investing £10m into Oxbotica, a company that specialises in software for driverless vehicles, which would be used in and around its warehouses and distribution sites. This investment in new technology is a key plank in the company’s desire to optimise its growth potential as it continues to sign new deals and gets the benefit from the deals it signed with the likes of Marks and Spencer last year, which helped push retail revenues up by 19.8%, to £1.22bn. This looks set to continue after M&S upgraded its guidance last month for the first time in over 20 years. The main concern for shareholders is the gap between its current valuation and its prospects for future revenue growth. However, given recent declines in the share price, this is less of a problem than it was back in February. 

Half-year total revenues saw a rise of 21.4% to £1.3bn, narrowing pre-tax losses to £23.6m This week’s Q3 numbers will be an early indication of how well the business is shaping up in this current fiscal year. New fulfilment centres are expected to boost the performance in the second half of the year, with Andover coming back online in Q3, and Purfleet set to open in Q4. 

UK unemployment (July)

TUE 14: The unemployment picture for the UK economy has improved significantly over the last few months, a trend that is best illustrated by the sharp decline seen in the claimant count rate since March, when it was at 7.2%. It’s fallen to 5.7% in July, as businesses continue to reopen, even with the delay to 19 July. Monthly claims fell by 7,800 in July, a modest slowdown from the 136,000 in June.

The ILO unemployment rate for June saw a slight decline to 4.7%, with the furlough scheme still disguising the full effects of the pandemic. It’s set to fall further to 4.6% for the three months to July, while wages growth has also moved higher, rising to 7.4%, with the risks it could well move higher, impacting UK inflation. As the furlough scheme continues to wind down and businesses have to contribute more to the scheme, there’s a probability the headline ILO number could start to edge higher and converge towards the monthly claim’s numbers, although high vacancy rates could well mitigate some of this risk. 

Last week, insolvency firm Mazars said that hotels and restaurants were already starting to feel the pinch, in a trend that looks likely to worsen as pandemic support programs start to come to an end. Therefore, the risks for unemployment look more positive than negative, with a lot of unfilled positions available for those who want them. The Bank of England is also more optimistic about the labour market than it was at the beginning of the year, adjusting its outlook for unemployment to 5.2% for this year, and down to 4.7% in the second quarter of 2022. We also have the latest headline inflation numbers for August, and expectations are for a big jump from 2% in July to 2.9% which, considering recent comments from Governor Andrew Bailey on policy normalisation, could increase pressure on the MPC to start removing stimulus.    

US consumer price index (August) 

TUE 14: Despite evidence that US producer price index (PPI) has continued to rise, US CPI slipped back in July, raising the possibility that we may have seen peak US CPI. Prices-paid numbers in the latest ISM surveys also suggest that might be the case, with prices falling back. However, it still seems a little too early to call time on rising US inflationary pressure. US CPI in July came in at 5.4%, while core prices fell back to 4.3%; however, the continued rise in PPI suggests that this may have merely been a pause in the upward trajectory in prices. Energy prices have continued to remain elevated with the recent call by the Biden administration urging OPEC+ to increase crude oil production, an attempt to divert attention away from their own culpability in helping to push fuel prices higher. Despite the rise in PPI, expectations are for headline CPI to come in unchanged, which seems a tad optimistic.       

China retail sales (August)

WED 15: Over the past few months there have been growing signs that China’s economy is slowing down sharply. Weak purchasing managers’ index (PMI) numbers and a decline in imports as well as exports speaks to an economy that is starting to misfire badly. July retail sales saw a sharp slowdown coming in at 8.5%, down from 12.1% in June, and much lower than estimates of 11.5%. Industrial production also slowed sharply to 6.4%, down from 8.3%. This slowdown is unlikely to be a one-off, given that China appears to be adopting a zero-Covid policy, a policy that could be difficult to achieve due to the highly infectious nature of the Delta variant. The latest services PMI numbers also point to weakness, with this week’s August retail sales numbers set to record a further slowdown to 7%, while industrial production is expected to rise by 5.8%, which would be its worst performance since August last year.

Darktrace full-year results

WED 15: Very much a UK IPO success story, Darktrace’s shares have done very well since jumping out of the blocks on 30 April. They launched well above the 250p IPO price, rising steadily and peaking at 784p in July. The company upgraded its full-year growth forecasts in July in its first update since listing. Full-year revenue is expected to come in at $278m, a rise of almost 40%. The company said it had increased its client base by 42% to around 5,600 customers. Darktrace also said it was upgrading its forecasts for 2022 for annualised recurring revenue (ARR) from 26.5%-29.5% to between 32% and 34%. However, the shares did suffer a setback when it was reported that shareholder Mike Lynch lost his appeal against extradition to the US on fraud charges, while some other investors took advantage of the expiration of a lockup period to take some profit on their stakes. While Mr Lynch is likely to appeal, it once again raises the concern that, as a key shareholder in the company through his Invoke Capital Fund, any fallout from Lynch’s problems with the US could prompt an unwelcome distraction for the business. 

Kier Group full-year results 

THU 16: it’s been a tough few years for the UK construction sector but, for Kier Group, there is some light at the end of the tunnel, after the company reported half-year pre-tax profit of £9m in April. In July, the company reported that it expected annual revenues of between £4bn and £4.5bn, putting it back to levels last seen in 2018, with a full-year operating margin of approximately 3%. More importantly, with the proceeds of the recent capital raise and sale of Kier Living, the company is now in a much better cash position with £350m in proceeds. Recent contract awards included £190m from Highways England for maintenance, and £50m for works on HS2, as well as work on broadband infrastructure in the South and West of England, and Scotland. The company said it expects to be cashflow positive for the full year. 

US retail sales (August)

THU 16: US retail sales have been difficult to predict this year – up one month and down the next. In June, we expected to see a decline of -0.5% and ended up with a gain of 0.6%. This suggests that the recovery in consumption is patchy at best, and while holiday and theme parks reopened in the summer months, we’ve seen the price of used cars soar. Cases of the Delta variant have also impacted consumer confidence, with sharp drops across the board in August. This is particularly disappointing for an economy that relies so much on consumer spending, and which has seen retail sales stall over the last three months. A decline of -1.5% in May, a rise of 0.7% in June and a -1.1% decline in July looks set to be followed by another decline in August. The recent payrolls report for August showed that jobs growth in hospitality and leisure came to a shuddering halt, which doesn’t bode well for the winter given that, for a lot of the US, August is the last hurrah for the summer season. So there may be another month-on-month decline for consumer spending, with a -0.7% fall in retail sales in August.  

UK retail sales (August) 

FRI 17: Since the big 9.2% rebound in April retail sales, UK consumer activity has been much more subdued, with the last three months revealing a decline of -1.3% in May, a 0.2% gain in June and a -2.5% decline in July, despite the full relaxation of Covid restrictions. It would appear that this relaxation contributed to some of the fall in retail sales spending, as food sales fell back sharply with the reopening of restaurants and other hospitality venues. Nonetheless, the last three months have been particularly disappointing when you look at other areas of the economy, which appear to have bounced back quite strongly. Other retail sales indicators have been much more robust when it comes to consumer activity. The onset of the school holidays, as well as back-to-school spending, should prompt a more positive August number for consumer spending, the so called ’pingdemic’ notwithstanding. It’s clear that the rules around isolation contributed to the sharp fall in July retail spending, with the biggest question being whether the relaxation of these rules on 16 August prompted a snapback, as people holiday at home, with expectations of a 1% rebound.  

Index dividend schedule

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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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