High street earnings likely to plummet

With Debenhams and the parent company of Argos due to report this week, more bleak times are expected by retail analysts.

With consumers being hit from all angles with higher domestic energy prices, increased food prices (which thankfully are showing signs of moderating) declining job security, and decreasing stock and house prices, it’s no wonder that the high street is gloomy. Definitely gone are the boom days of only a couple of years ago when everything ahead looked plain sailing to most.

The trading update last week from Travis Perkins showed just how bad the UK housing market getting. The retailer of DIY products and supplies for the building trade said that activity had virtually ground to a halt as it issued a profit warning.

Investors are eyeing Home retail group, owner of Argos and Homebase for a trading update on Wednesday. In the second quarter, heavy like for like sales declines of 5.8% and 8.3% were announced for Argos and Homebase respectively.

Terry Dud, the Chief executive said at the beginning of September that the performances were indicative of a “difficult consumer environment”. Consensus forecasts were put at £121m for the half year.

Debenhams on the other hand gave the market cause for celebration in September with its most recent update with only a 0.9% fall in like for like sales. Debenhams will update its results today with investors increasingly worried about the company’s £1bn debt pile, accrued after being floated by a private equity firm in May 2006.

Should trading conditions deteriorate further, analysts are worried that the groups banking covenants could be in trouble…and that is where the real danger lies for a lot of companies in this credit crisis.  If Banks can’t restructure their debts or have problems accessing capital from banks who are themselves worried about their own solvency and long term prospects, then the credit crunch could inflict a mortal blow on otherwise sound businesses. Let’s all keep our fingers crossed that this doesn’t happen.

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Tags: Credit Crunch, Global Credit Crisis, Housing Market, Investors, Terry Dud, Travis Perkins, UK Banks