ISA and SIPP holders invested in Tesco received a boost today as the supermarket chain that is one of the biggest stocks in the FTSE 100 reported improved like-for-like sales over the Christmas period. The result, despite its context in what the company described as a ‘challenging market’, should offer further support to a Tesco share price that has been on an upward trend since the last days of 2019. The stock has gained over 11% since December 28th. Investors will hope the recovery remains in place after a slump that saw the company’s value plummet by close to 30% between August and its end of year low.
However, Tesco’s Christmas performance suggests that despite a tough environment for retailers generally, UK consumers are not cutting back on their groceries spend. Like-for-like Christmas sales showed a 2.2% improvement on the same period a year earlier. However, this was somewhat tempered by just 0.7% growth over the whole final quarter. The data refers to Tesco’s UK stores only.
Chief executive Dave Lewis put the strong Christmas performance down to “significant improvements in our competitive offer”.
A major success for Tesco has so far been last year’s £4 billion acquisition of Booker, the wholesaler that is one of the chain’s major suppliers. Over the third quarter, the unit’s like-for-like sales were up 11%. New contracts and a wider range of Booker products in Tesco supermarkets fuelled the wholesaler’s growth.
Tesco is currently confident that full year results for its 2018/19 financial year, due to be announced as preliminary figures on April 10th, are on schedule to meet the consensus forecasts of analysts.
The wider UK retail sector didn’t, however, enjoy such a merry Christmas. The British Retail Consortium said yesterday that flat sales on the year earlier meant the Christmas period was the worst in a decade in terms of growth rates. Many retailers resorted to heavy discounts to stimulate sales. While this resulted in them managing to achieve comparable revenues to 2017, margins and profits will have suffered.
However, there has been a notable split in the retail market. While entertainment chain HMV went into administration and online fast fashion company Asos issued a serious profit warning, others, notably Next, John Lewis and homeware retailer Dunelm, have offered positivity. The common thread through those weathering the storm is that they have invested in modernisation of their online and delivery offerings.
Next’s drop in bricks-and-mortar sales was offset by a strong 15% rise in its online sales. On the other side, companies that have allowed themselves to fall behind in that regard, notably the likes of Debenhams and M&S, could be in trouble.