Despite reporting strong Christmas sales in recent days, Tesco, Marks & Spencer and B&M all saw slips in their share prices, as a “glass-half-empty market seized on any traces of negativity,” commented Russ Mould, investment director at AJ Bell.
The wider economic backdrop, including a rise in UK gilt yields and a drop in the pound, is “doing nothing for sentiment towards domestic stocks,” Mould said, adding that Tesco’s slight dip in share price “feels like a bit of a win for the supermarket chain – even if it feels equivalent to coming out on top in a fastest-snail competition.”
Tesco Performance
Last Thursday, Tesco reported a 4.1% rise in underlying UK sales over the Christmas period, with CEO Ken Murphy praising the performance as its “biggest ever” Christmas.
“Tesco delivered strong market share gains in the three months to 4 January,” Mould commented. “Investors may have been disappointed at the decline in revenue growth, but this reflected lower levels of inflation.
“The lack of upgrades to sales and earnings guidance may have reflected Tesco’s commitment to keeping prices low and having plenty of extra Christmas staff on hand, in order to get people through the tills and build loyalty to the brand – all costing money. If so, this looks like a sensible strategy of foregoing a short-term boost in order to derive a long-term benefit, from an enhanced competitive position.”
Marks & Spencer
With regard to M&S, which reported an 8.9% increase in food sales in the run-up to Christmas, Mould added that the retailer’s “commitment to value is paying off with its customers. While food was reassuringly strong, in-store sales of clothing were down, with online coming to the rescue, to a certain degree. Meanwhile, the international operations are doing little to justify their place in the wider group.
“Dragging Marks & Spencer’s shares down is the gloomy tone adopted in the outlook statement. While understandable, given the impact of the Budget changes, sticky inflation, and higher-for-longer rates, the comments chime with the current bleak mood around the UK’s economic prospects.
“Notably, Marks & Spencer is more reliant on discretionary spend than Tesco, given its much more meaningful presence in non-food categories.”
B&M Retail
Lastly, with regard to B&M Retail, which reported a disappointing 2.8% drop in sales in its third quarter, including the Christmas period, Mould admitted that there is “little you could do to dress up” the retailer’s performance.
“While hardly a disaster, the negative like-for-like growth in sales reflects poor consumer sentiment and suggests that the chain’s value credentials aren’t doing enough to support demand,” he said. “A £150 million [€178.3 million] special dividend, aimed at keeping investors on side, was largely dismissed as the stock tumbled.”