Solid Christmas for UK supermarts before uncertain 2017
LONDON: Britain’s three quoted major supermarkets are expected to report this week that they enjoyed solid Christmas trading, though investor concern about a potential squeeze on consumer spending in 2017 means the focus is on their outlooks.
Shares in market leader Tesco and Morrisons, the UK’s fourth biggest grocer, soared 38 per cent and 55 per cent respectively in 2016, reflecting a recovery in trading.
That coincided with a slowdown in sales growth at German discounters Aldi, which will update on Christmas on Jan 9, and Lidl as Britain’s traditional supermarkets cut their prices, and continued problems at sector laggard Asda, the No. 3 player.
The share price of No. 2 Sainsbury’s was held back by uncertainty over the merits of its 1.1 billion pounds (US$1.36 billion) takeover of household goods retailer Argos.
Robust growth in consumer spending has been one of the main factors sustaining Britain’s economy since last June’s vote to leave the European Union.
However, retailers fear a reduction in spending as inflation begins to erode real earnings growth in 2017.
Sterling’s devaluation since the Brexit vote – down 12 per cent against other major currencies – has also driven up supermarkets’ import costs, as have commodity price increases. They also face further cost pressures from the national minimum wage, business rates and utilities.
There are also signs that Asda, the British arm of Wal- Mart, will make life tougher for rivals in 2017.
Analysts say a new management team is starting to make an impact, putting more staff on the shop floor and generally improving store standards.
While underlying sales slumped 5.8 per cent in its third quarter, they anticipate a significant improvement when it reports fourth quarter results next month.
Analysts expect Tesco (on Jan 12) to report UK like-for-like sales growth of 1.25 to 2 per cent for its third quarter to Nov 26 and growth of 0.6 to 1.5 per cent for the six weeks to Jan 7, building on four straight quarters of underlying growth.
Morrisons (on Jan 10) is expected to report underlying sales growth of 1.1 per cent for the nine weeks to Jan 1, according to an average of analysts’ forecasts, a fifth consecutive quarter of growth.
Sainsbury’s (on Jan 11) could be perceived as the relative loser of the three, with analysts on average forecasting a like-for-like sales fall of 0.8 per cent for its third quarter to Jan 7, though it is still expected to report volume growth and underlying sales growth at Argos of 1.5 per cent.
However, it is important to note that Sainsbury’s, unlike Tesco and Morrisons, is not in turnaround mode and has not had to rebase its like-for-like sales performance.
Updates due next week from a raft of other UK retailers, including from Marks & Spencer, department stores John Lewis and Debenhams, Primark owner AB Foods and ASOS.L, will also shine a light on prospects for the sector.
Marks & Spencer will (on Jan 12) report on its third quarter to Dec 31.
Analysts are on average forecasting like-for-like sales growth in its clothing and home division of 0.2 per cent with underlying sales in its food business down 0.4 per cent. — Reuters