Retailers are encountering a perfect storm of rising costs, Brexit uncertainty and channel shift online at present and the general feeling is there will be no winners over the Christmas period.
Recent profit warnings from non-food retailers and the demise of HMV, which has gone into administration for the second time, all suggest the sector will be nursing a New Year hangover. And yet groceries goliath Tesco (TSCO) may have fared better than most over Christmas, according to the experts at UBS.
PORT IN A STORM?
UBS’ Daniel Ekstein believes that amid the pervading high street doom and gloom, the defensive characteristics of the grocery sector ‘are being largely overlooked here’. Whilst grocery, a non-discretionary business, is less seasonal than most retail categories, ‘sales in festive week can be twice normal levels and this is still an important trading period.'
Ekstein concedes consumer confidence is low and the grocers faced tough tail-end of 2017 sales comparatives this Christmas. However, Christmas Day fell on a Tuesday this year, which should have supported volumes as consumers had the weekend before for entertaining friends and family and more shoppers were off work on Christmas Eve this time around.
TESCO TO PROVIDE A POSITIVE SURPRISE?
‘Tesco feels like the stock where expectations are set lowest’, points out the UBS number cruncher. Ekstein has trimmed his estimates for rivals Wm Morrison (MRW), facing the toughest Christmas comparative of the so-called ‘Big Four’ supermarkets, and J Sainsbury (SBRY), the latter’s Argos and clothing businesses challenged by weak consumer confidence and subdued discretionary spending.
Significantly, the UBS scribe reckons Dave Lewis-led Tesco’s UK Christmas like-for-like sales performance ‘could reassure the market’ when Britain’s biggest retailer updates the market (10 Jan). In the period since half year results, investors have become more nervous over the supermarket’s delivery of key financial targets.
Yet Ekstein, forecasting 1.5% like-for-like sales growth for the 6 weeks to 5 January, thinks Tesco’s Christmas could ‘deliver a positive UK like-for-like surprise versus market expectations’, aided by a competitive offer which is ‘as sharp as it’s been in years’.
Market expectations seem to have been set at a low-ebb, given recent Kantar data, and a couple of specific UK top-line headwinds from last year’s Christmas’, including tobacco availability issues following Palmer & Harvey’s administration, ‘should unwind'.
