UK retail remains in focus as Kingfisher and JD Sports set to report

1) UK Flash PMIs – (Sep) – 23/09 – the services sector has been one of the few bright spots when it comes to the UK economy in recent months rising to 54.2 in August and the highest level since April 2024. The main driver was a sharp rise in new orders as concerns over the effects of US tariffs eased and prompted a rebound in sentiment. Nervousness over further tax rises in the November budget did temper some of this optimism, however one look at the manufacturing sector shows that sentiment remains incredibly fragile. In August manufacturing slipped further from a weak July to 47, with a fall in new orders contributing to the weakness, along with a 10^th successive month of job losses. Recent headlines of companies like Ineos, Merck and AstraZeneca pausing investment in the UK have also had a chilling effect on confidence as the sector grapples with high energy prices and an uncertain future.       

2) US Personal spending (Aug) - 26/09 – retail sales in August came in much stronger than expected in data released this week, rising 0.6% well above forecasts of 0.2%. The strength of the numbers would appear to suggest that while the US consumer is feeling the pressure from the cost of living, the appetite to spend still appears to be there. Expectations for personal spending are forecast to be in line with July of 0.5% with personal income at around 0.4%.        

3) US PCE (Aug) – 26/09 – with a 25bps rate cut now delivered market pricing for the next cut is currently at the December meeting, despite Miran pushing for a 50bps reduction. There are concerns about the labour market, however concerns about price pressures are likely to keep Fed policymakers’ cautions. We are starting to see evidence of a slowdown in the produce prices supply chain however it’s not immediately clear how quickly this will trickle down into the headline numbers. In July, US PCE edged up close to 3% at 2.9%, having edged up from 2.8% in June. and while it remains this close to the 3% level it's unlikely the Fed will cut again until December at the earliest unless we see prices start to slip back towards the 2.5% level.             

4) Raspberry Pi H1 25 – 23/09 – standing out as one of the few UK IPOs of 2024, the Raspberry Pi share price has managed to hold onto its post IPO gains, gaining entry into the FTSE 250 in the process, although it remains well below its share price peaks of 775p of February this year. There had been some reports of overseas buying of the shares with US investment group SW Investment Management being touted around at the start of the year which prompted the early year share price surge. When the company reported in April full year pre-tax profits fell to $16.3m as inventory problems weighed on the business. Revenue also declined but only by 2% to $259.5m. Since October the company has sold 1.9m units of its Pi 5 computer saying it expects to continue to engage with multiple OEM providers as it looks to scale up production and generate more sales. The shares have been languishing close to the 400p level for most of the last quarter, although there was a brief rally to 550p in May which proved somewhat fleeting.  

5) Kingfisher H1 26 – 23/09 – it’s not been a great quarter for Kingfisher share price wise. The B&Q owner has seen its share price slide to its lowest level in 4 months over concerns that a squeeze on retail spending could hit revenues and profits. In late August the shares fell sharply after Deutsche Bank issued a note warning that fears over higher unemployment could constrain consumer spending. The bank went on to cut its ratings on not only Kingfisher but Wickes as well as Primark owner Associated British Foods. In response to some of these concerns over lower spending B&Q recently announced it would be cutting 650 management positions throughout the business in order to retain control of its higher cost base. In May the company reported a strong first quarter with the UK operation seeing sales increase by 6.1% to £1.7bn, with LFL sales rising 5.9%, pushing total sales up 1.6% to £3.3bn. The French operation continues to be a dog’s breakfast of underperformance with total sales declining -4.9% to £976m, and -3.2% on a LFL basis. On a brand basis B&Q saw LFL sales increase by 7.9% as the warmer weather helped prompt an early rush to their stores. Screwfix sales also saw gains of 2.9% on a LFL basis. As far as the French businesses were concerned Castorama and Brico Depot performed in line with expectations, despite “challenging market conditions. In full knowledge that trading conditions were likely to be more difficult heading into the rest of the year, management still maintained full year guidance for adjusted profits before tax at between £480m and £540m. This suggests that the recent pessimism and share price weakness may well be overdone. We shall see.  

6) JD Sports H1 26 – 24/09 – since hitting 5-year lows in April the JD Sports share price has managed to recover slowly rising to its best levels since early January at the end of August on optimism that the recent concerns over tariff impacts may have been a little overdone. When the retailer published its full year numbers these concerns were apparent given that most of its stock gets imported from China and Vietnam. This could put a dent in expectations for profits this year which are currently in the area of £890m. This saw the company announce that Q1 like for like sales declined 2% with the US bearing the brunt with a 5.5% fall. That said the full year numbers were solid with full year revenues rising 10.2% to £11.46bn, with profits before tax, sliding 11.8% to £715m, when taking into account adjusting items. Operating margins slipped back to 8.2% from 9% all in line with forecasts. Organic sales growth of 5.8% was in line with expectations, however trading in Q1 got off to a slow start, particularly in the US, where the retailer has shown a reluctance to cut its prices. This could be a problem given that its US operation is now much bigger due to its Hibbert acquisition, and now accounts for the biggest region when it comes to overall sales. With the US consumer appearing more resilient than expected, this week’s H1 update could offer the capacity to surprise, although one also needs to keep a close eye on margins.