Slow progress for Tesco as Sainsbury ploughs on
Shore Capital analyst Darren Shirley’s note on Tesco stated that “the most notable feature in this update is that the performance in Europe was pretty awful”.
He also highlighted that like-for-like group trading profit, including losses in China, represented “a 6% miss on our forecasts”.
“Europe most certainly needs attention from Tesco’s management,” stated Shirley. “Trading in H1 [first half of its financial year] was pretty atrocious in a number of Tesco’s European markets, with like-for-like sales down by 12.8% in Turkey, 6.4% in Poland and 6.9% in the Czech Republic.”
The retail behemoth reported a 70.8% drop in group trading profit in Europe, excluding currency fluctuations, to £55M, contributing to an 8.4% fall in underlying pre-tax profit to £1.47bn.
In its core UK market, like-for-like sales fell 0.4%, with a flat second quarter.
‘Challenging retail environment’
Chief executive Philip Clarke admitted: “The challenging retail environment in Europe has continued to affect the performance and profitability of our businesses there.”
However, he added: “The investments we have made to improve our offer for customers in the region are already starting to take effect and we expect a stronger second half as a result.”
And he said performance in the UK throughout the 26 weeks to August 24 had strengthened, particularly in Tesco’s food business.
“Our online grocery businesses have continued to perform well across the group, and we are now offering the service in over 50 cities across nine markets outside the UK,” he added.
Tesco confirmed it had invested £345M in a 20% stake in China’s largest retailer China Resources Enterprise and expected to complete the deal, subject to regulatory approval, early next year.
Meantime, Sainsbury posted its 35th consecutive quarter of like-for-like sales growth in its trading statement for the 16 weeks to September 28.
Like-for-like sales rose 2% during the period and 1.4% during the first half of its current financial year (excluding fuel).
Sainsbury’s convenience stores
Analyst Morgan Stanley said the second quarter performance was “slightly ahead of expectations”. “Of note, helped by the warm summer, Sainsbury’s convenience stores posted 20% year-on-year growth,” it added.
The figures followed hot on the heels of Kantar data showing that Sainsbury was the only major grocer growing market share in the 12 weeks to September 15.
“Considering the squeeze on the mid-market, Sainsbury’s is outperforming its Big Four competitors, enjoying a gradual march on market share,” said George Scott, retail consultant at Conlumino.
However, he cautioned the expansion of discounters Aldi and Lidl and the growing impetus of Waitrose would challenge Sainsbury’s progress.
Sainsbury chief executive Justin King commented: “Our own brand offer continues to grow at over twice the rate of branded goods, with Taste The Difference growing particularly strongly and ‘by Sainsbury’s’ performing well following its relaunch.
“Our groceries online business grew by over 15% in the quarter and is now worth over £1bn in annual sales.”
