Asda has delivered a welcome improvement in its underlying trading performance as outlined through its fourth-quarter trading update, albeit same-store sales are still falling.
Against what it has to be said were very favourable comparatives of -5.8%, the Leeds-based chain reported a like-for-like sales decline of 2.9% – only a smidgeon below our -2.5% estimate (total sales at Asda fell marginally in Q4 by 0.6%).
Sensibly, management on both sides of the Atlantic, while noting the improvement, are signalling that Asda is presently a work in progress.
“Stores are cleaner, less cluttered and benefiting from the addition of more necessary resources, most notably in people”
Walmart chief executive Doug McMillon speaks of addressing matters with “urgency”, while Sean Clarke in the UK talks of having a “lot to do”.
That to-do list is quite long to our minds, but it is evident to anyone who has walked an Asda store in recent weeks that material progress is being made.
Stores are cleaner, less cluttered and benefiting from the addition of more necessary resources, most notably in people where, frankly, not only fat but muscle was cut out in recent years to the detriment of the retail offer.
Counters and check-outs are now manned to good effect and the shopping experience is wholly more effective.
Room for improvement
Asda speaks of “sharpening our prices”, which is an industry-wide narrative and necessary for sure.
While this is so, Asda still has robust price-value credentials to our minds and becoming more competitive involves a broader basket of factors – including customer service and availability – which happily are now the focus of management attention.
“We therefore expect steady and assured progress to be made by Asda this year coming on the back of three tough trading periods”
Hence the importance of improving store standards, albeit a lot more work needs to be undertaken on the product offer in order for the business to be firing on all cylinders.
Looking into Mystic Meg’s crystal ball, we therefore expect steady and assured progress to be made by Asda this year coming on the back of three tough trading periods.
Such progress should be manifested in further better news of top-line progress, benefiting for the next three quarters from favourable comparatives still, perhaps resulting in sales growth by the year-end.
With ongoing retail discipline, better resourcing and development work, Asda should underscore its No 3 position in the market and so provide a basis to stabilise and rebuild profitability thereafter.