The Week Ahead: PMI Data, Nike, Cineworld Results

Watch our week ahead video preview, read our pick of the top stories to look out for this week (21-25 September), and view our key company earnings schedule.

Our UK chief market analyst, Michael Hewson, looks back at last week's price action in equity markets, indices and currencies, and ahead to flash PMIs, plus key levels on the FTSE 100, DAX, Nasdaq and major currency pairs.

Superdry full-year results

Monday: Last year Superdry (LON:SDRY) founder, Julian Dunkerton, managed to regain his place on the board, prompting the existing board to resign en-masse. Since then, Superdry’s share price has struggled as investors weigh up whether he can deliver a plan to turn the business around, with the Covid-19 crisis complicating matters enormously. In August the company agreed a new £70m debt facility to January 2023, which replaced the one that was due to expire in January 2022. This week’s full-year results are expected to show that total group revenue has declined 24.1% year-on-year. In terms of store reopenings, 95% reopened in August, with store revenue down 58.1% in Q1. E-commerce showed a 93.2% rise in the same quarter; however, these figures aren’t likely to give us much clue as to the final annual numbers .Investors are likely to be more interested in how management see the rest of the year playing out.

Kingfisher half-year results

Tuesday: Kingfisher has had its fair share of problems in the past few years, not least the drag from its French operations, while even the UK B&Q business has struggled. The company is in the midst of a five-year turnaround plan involving a radical overhaul of its IT and buying systems, after the company announced a fall of 12.5% in H1 profit a year ago. With new CEO Thierry Garnier less than a year into the job, the Kingfisher share price has undergone a sharp transformation, helped in no small part by the coronavirus crisis, despite confirmation of a 66% fall in its full-year profit in its final numbers released in the summer. With DIY chains allowed to stay open in April and May, online sales surged, helped in no small part by its Screwfix brand. In July, the company announced that Q2 like-for-like sales until 18 July rose by 21.6%, with Mr Garnier expressing optimism about the outlook, after announcing the addition of 4,000 staff to deal with the extra workload from the online business boom.

Nike Q1 results

Tuesday: When Nike reported its Q3 numbers in March, it was notable that while online sales were resilient, its China operations were a significant drag due to the February shutdown of the Chinese economy. Even though Greater China stores managed to reopen in March, Nike then faced shutdowns in the US and Europe, which are likely to hit its Q4 numbers. This disruption led to Nike posting a loss of $790m or $0.51 a share in Q4, on revenue of $6.31bn, a decline of 38% from a year before. Despite this setback, the Nike share price has continued to do well, posting new record highs earlier this month. These gains appear to be driven by sharp rises in digital sales, which rose 75%, however higher costs could continue to weigh on its margins, now that most of its retail stores have reopened. In Q4, these margins fell to 37.3% from 45.5%, and while Nike has pledged to drive new business through its digital channels, there is some concern that investors are under-pricing the risk that margins could get hit even harder. After the losses of Q4, the company is set to return to profit in Q1 of $0.41c a share.

France/Germany manufacturing/services PMIs (September)

Wednesday: There has been increasing evidence in the last few weeks that the rebound in France and Germany is running out of steam. In the most recent August purchasing manager indices (PMIs), the numbers painted a mixed picture for the German economy, with services in particular showing a slowdown, to 52.5, after a strong July performance. In France it was a similar picture, with services slowing to 51.5 from 57.3, as rising infection rates prompted localised lockdowns and restrictions imposed across the country. As we come to the end of Q3, it’s clear that the recovery in the wake of the contractions in Q2 has been a robust one, but a further deterioration in the September PMIs could raise serious questions about the likelihood of a sustainable economic rebound.

UK flash manufacturing/services PMIs (September)

Wednesday: No-deal Brexit concerns notwithstanding, the UK economy has continued to perform well in its post-lockdown period, and after the outperformance in August, expectations are high that September’s economic activity will remain close to the levels in August, where ’the eat out to help out scheme‘ helped boost the services numbers significantly. Services activity hit a five-year high of 58.8 last month, also helped by stronger demand in the housing market, as well as increased domestic spending as consumers holidayed at home. Manufacturing also held up well, coming in at 55.2.

Smiths Group full-year results

Thursday: When coronavirus was starting to spread across Europe in March and April, Smiths Group was at the forefront of the coronavirus outbreak, being a specialist in the production of medical ventilators, as the NHS scrambled to boost the number of breathing aids it needed to help save lives. The company makes ventilators at its Luton site, and has ramped up production as well as providing intellectual property advice to other companies to help boost production. Management said its ambition is to supply an extra 30,000 ventilators over the next three months. In March, Smiths Group said it was delaying the separation of its medical devices unit until the pandemic had passed, which means it will probably never happen. Its operations did experience some disruption in China, while in June the company warned about an increase in costs, as well as saying that for the 10 months to 31 May, underlying revenue rose by 2%, with year-to-date revenue up 6%. Earlier this month, its detection division won a contract with US Customs for rail cargo inspection worth up to $379m.

Cineworld half-year results

Thursday: The decision by Cineworld (LON:CINE) to back out of the $2.1bn Cineplex deal has prompted some controversy, putting the cinema chain at threat of legal action. The logic of the deal was already questionable even before the outbreak of the Covid-19 pandemic, given CIneworld’s already high debt levels , following its acquisition of Regal Entertainment in 2018, against a backdrop of weakening footfall. With UK cinemas only now starting to reopen, and major studios delaying the release of their summer blockbusters, cinema chains are facing a struggle to get people through the door, even without the rules that require customers to wear a mask. Disney pushed Mulan online and then delayed the release of its latest Star Wars and Avatar films, while the latest James Bond film isn’t due to be released until November. The US market in particular has struggled with the on-off nature of local lockdowns. The Cineworld share price did get a lift on the back of the recent decision by a US judge overturning the rules that dictated how films are released in the US. Since the 1950s, Hollywood had a monopoly on how films could be produced, exhibited and distributed, a practice that has now had time called on it. This saga took on an added twist with a story in August which prompted speculation that Cineworld, or other cinema chains, could be the subject of a takeover bid from a big Hollywood studio, with Cineworld shares currently near record lows. Cineworld’s share price has taken a battering over the past 12 months, however the main reason for the weakness, coronavirus concerns notwithstanding, is the level of the company’s debt, which along with its modernisation programme has placed an enormous strain on its balance sheet. With footfall at record low levels, and likely to remain subdued, there are significant obstacles to a potential takeover, not least how to accurately predict future cashflow in a post-Covid world.

Germany IFO business climate (September)

Thursday: Despite slowdowns in PMI data in August, German businesses appeared to have a slightly more optimistic view of events, as the latest business climate survey continued its improvement from the 74.3 lows of April, with an August reading of 92.6. It’s quite likely that a lot of German businesses are concerned over the prospect of a second wave, which might mean it could struggle to get back to the levels we were seeing at the end of last year, and the beginning of this year, in the mid-to-high 90s. While the German government has pledged to continue its fiscal plans to support the German labour market until the end of 2021, German businesses may hold back from large-scale investment in their longer-term plans if indications about a continued recovery start to falter.

EU Summit

Thursday: A special European Council was called by EU president Charles Michel in August. EU leaders will meet in Brussels to discuss the single market, industrial policy and digital transformation, as well as external relations, in particular relations with Turkey and China. The summit will also be an opportunity to take stock of the Covid-19 pandemic. Brexit talks are also likely to be on the agenda, despite EU leaders' protestations to the contrary. Given the current state of play, how can it not be?

US weekly jobless claims

Thursday: The continued decline in weekly jobless claims, to 850,000, appears to suggest that the US economy is continuing to hold up reasonably well, despite concern that the ending of the $600 a week benefit stimulus might prompt a spike in claims. Despite the declines in weekly jobless numbers, they are still far too high for an economy that is supposed to be bouncing back from one of the worst economic shocks in our lifetimes. It’s clear from last week’s retail sales that consumption is starting to wane, as disposable income starts to fall. At the current rate of decline, weekly claims may start to find a bottom before edging higher again, as business delay hiring ahead of the upcoming US election.

Darden Restaurants Q1 results

Thursday: Darden Restaurants (NYSE:DRI) has managed to ride out the pandemic shutdowns better than most. The owner of the Olive Garden was able to offset the effect of the shutdown period by offering a takeaway service to its clients. Sales still dropped 43% in the previous quarter, and the likelihood is that with social distancing rules remaining in place for some time to come, lower revenues are likely to be a natural consequence. In the last quarter online ordering at the Olive Garden increased 300% from the year before, while its Longhorn Steak House chain saw a 400% increase. To cut costs, Darden has embarked on a $35m restructuring programme as a result of lower footfall that is expected to become the norm, while it also needs to take steps to reduce its debt load. With more of its restaurants now reopen, management will be hoping for a return to some form of normality, with a forecast that Darden will be able to return to profit in Q1, albeit a small one of $0.04 a share.

Selected UK & US company announcements

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

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