Festive period has produced some clear winners and losers in the retail sector.
Tesco reports strong Christmas trading amid ‘challenging’ market
- The company reported a 2.2% increase in like-for-like UK sales, boosted by the success of Booker which saw a 6.7% rise in sales.
- This morning, the BRC reported that retailers had the worst Christmas trading period for 10 years as Marks & Spencer, John Lewis and Halfords all reported disappointing numbers.
- We continue to recommend the shares as a low to medium risk ‘hold’.
Whilst many retailers are today reporting slow Christmas sales, Tesco had some good news for the market as its update showed a 2.2% increase in like-for-like UK sales in the 6 weeks to 5th January. However, growth for the third quarter was lower at 0.7% in the UK and 0.5% for the company as a whole compared to 1.5% in the Christmas period.
The Booker wholesale business saw a 6.7% rise in sales. Tesco attributed its success to significant improvements in its offer and said it remained confident on the outlook for the full year. Sales in the Central European operations fell 2.4% but the company is in the middle of a restructuring exercise there which involves a number of store closures.
Other retailers provided something of a contrast as the British Retail Consortium said it had been the worst Christmas trading period for 10 years with sales overall the same level as last year.
Marks & Spencer reported a drop in both food and clothing sales whilst John Lewis said it would report a big drop in annual profits and a profit warning from Halfords led to a 20% drop in its shares in early trading.
Christmas has produced some clear winners and losers in the retail sector and groceries have held up better than some other areas. Tesco’s substantial efforts to become competitive are paying off and we continue to recommend the shares as a low to medium risk ‘hold’ although investors need to be conscious of the looming challenge of the Asda/Sainsbury tie-up.
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