Big grocers took the spotlight this week as Sainsbury’s and Tesco issued first-quarter updates. And what the pair had to say has implications for the entire retail sector.
Sainsbury’s, which notched up a 7.8 per cent like-for-like rise excluding fuel and the VAT change impact, surprised with plans for a £445m share placing and convertible
The proceeds will be used to accelerate strategy as the grocer moves from its recovery phase to growth. Cash will be used to acquire more premises, extend stores and ramp up non-food.
Singer analyst Matthew McEachran said Sainsbury’s homewares and Tu clothing were performing well and warned that that “could potentially weigh on M&S as well as other relevant competitors in the food and non-food arena”.
Tesco, which has been out of favour among some in the City as rivals recovered, pleased investors with a 4.3 per cent comparable store sales rise in its core UK business.
ritain’s biggest retailer reported that the Clubcard relaunch had won a “very encouraging” response from customers. Crucially, Tesco said that its non-food business had returned to like-for-like growth. Electricals, homewares and toys all delivered “good growth”. That was taken by observers as a sign that consumers, while still unsettled, maybe relaxing their purse strings a little.
Broker ING reiterated its buy advice on Tesco and said it is on an “extremely harsh” rating. Charles Stanley, recommending accumulate, said: “In the UK the consumer environment is felt to have stabilised and is forecast to gradually improve.”
Anglo-French electricals group Kesa, which issues full-year numbers next week, is in exclusive talks to sell its Swiss operations for £1.4m. Seymour Pierce, advising hold, said the disposal would have “no significant implications”.
Battered fashion group Alexon disclosed a 10.5 per cent like-for-like slump in the 17 weeks to June 13 but stressed that its turnaround strategy is “progressing well”. The retailer said: “We anticipate that our investments in improving range differentiation and enhanced product values, combined with incremental new business opportunities during autumn, will partially offset the impact of a very challenging retail environment.” Numis switched its recommendation from hold to reduce and said: “The Alexon brands remain some way behind many of their high street peers.”
Pali International noted that Halfords’ valuation “looks about right” following the retailer’s finals. Pali said: “For all its defensive merits, Halfords always seems to have to run quite hard to stand still and, with Eastern European losses persisting, this year is unlikely to see much profits growth.”