Trading updates from high street giant Marks & Spencer and supermarkets Tesco and Sainsbury’s will keep the spotlight firmly on the retail sector next week in the latest flurry of Christmas sales figures.
Supermarket giants Tesco and Sainsbury’s will kick off the sector’s festive trading updates amid concerns of a tough Christmas for the “big four” grocery chains.
Industry survey figures last month suggested discounters would emerge as the clear winners over the period after revealing that half of households shopped at Aldi or Lidl over the three months to December 8 as consumer finances came under pressure.
Kantar Worldpanel revealed that Aldi boasted a record 4% share of the market since growing its sales by 30% from a year earlier, while Lidl’s share for the 12-week period was 3.1% thanks to year-on-year growth of 15.5%. This ate into market shares of the major players, with Tesco’s slice falling to 29.9% from 30.6% a year earlier, while the strongest sales performance of the big four failed to prevent Sainsbury’s from slipping to 16.8% from 17%.
Sainsbury’s, which is first up with its third quarter figures on Wednesday, is expected to break its lengthy record for sales increases, with analysts pencilling in its first decline after 35 quarters of growth in a row.
The market is forecasting sales to have slipped by 0.3% in what would mark a sharp reversal of recent buoyant trading. It compares with a 2% hike in sales for the second quarter and a 0.9% rise for the same period a year earlier.
Morgan Stanley analysts said Sainsbury’s was likely to have been hit by aggressive promotional activity from competitors, slowing food price inflation and a drop in consumer confidence.
But they believe the result will overshadow a better performance in the four-week run up to Christmas as consumers delayed festive spending.
They added: “Despite a tough quarter, we continue to believe Sainsbury will deliver on its top line and profitability guidance.”
Other experts have voiced fears that non-food will have suffered alongside food sales over Christmas, as shoppers rein in spending and skew buying towards promotional activity, which could see Tesco suffer when it reports on Thursday.
It is already on the back foot after recently suffering a fresh dip in quarterly sales, down 1.5% in the three months to November 23, with general merchandise sales continuing to weigh on its performance as it pulls out of non-profitable product lines.
Chief executive Philip Clarke, who is overseeing a £1bn plan to refresh the business, is under increasing pressure to start delivering. The group was hoping recent changes, such as the relaunch of its Finest range and refurbishment of 100 stores, as well as its burgeoning online service would give it a boost.
But it has a tough act to follow from the previous festive period, when sales grew by 1.8%.
Analysts at Barclays are predicting a hefty sales decline of between 2% and 2.5% for the six weeks to January 4. They said the general merchandise hit would be “more pronounced at Christmas, given seasonally higher non-food sales”.
Marks & Spencer’s performance over the crucial Christmas period comes into focus on Thursday after mixed signals from rivals and investor nerves in recent weeks over the high street bellwether’s performance.
Shares took a turn for the worse in the last few days of shopping before December 25 as UBS analysts downgraded the stock amid fears profit margins could be hit as M&S resorted to aggressive discounting, while others worried promotions could hurt the brand in the long-term. The group rolled out a much-heralded “Mega Day” on the Saturday before Christmas, with 30% reductions across clothing lines.
But department store Debenhams revealed discounts failed to spark a late shopping surge, leaving it warning over a sharp fall in profits as it said it needed to stage further offers to clear stock.
M&S executives will have hoped instead to emulate some of the sales sparkle reported by Next, John Lewis and House of Fraser – particularly the latter, which said it managed to boost trade while sharply lifting profit margins at the same time.
But M&S’s beleaguered general merchandise (GM) division, in particular its clothing section, has been struggling to make headway under chief executive Marc Bolland. Its latest autumn/winter collection, marketed in a major campaign featuring stars such as Helen Mirren, was billed as the key opportunity for a revamped fashion team to make its mark on GM sales. The three months to the end of September saw these fall for the ninth successive quarter, by 1.3%, on a year earlier.
Credit Suisse analysts have pencilled in a flat like-for-like performance for GM sales for the third quarter to December 28, but whether this will be enough to relieve pressure on Mr Bolland remains to be seen.
Food sales at M&S have performed strongly despite the woes of its fashion division, but Credit Suisse predicts like-for-like growth for the third quarter will have slipped to 1.5%, from 2.5% in the second quarter.
Domino’s will deliver the final slice of its trading picture for 2013 when it publishes an update on Wednesday as investors wait for the pizza firm to appoint a new boss.
Lance Batchelor’s announcement last month that he was stepping down put shares under pressure, as he is seen as having driven impressive sales and results. Analysts said the change at the top created further uncertainty after it slowed the pace of UK expansion plans.
Domino’s is also grappling with troubles at its fledgling operation in Germany, where it has 25 outlets, after admitting earlier this year that the division would not break even until 2016 or 2017 as it decided to proceed more cautiously with its plans. The fourth quarter trading figures will cover the 13-week period to December 29. Annual results are due to be published in February.
Domino’s reported a 4% like-for-like sales boost over the summer quarter, fuelled by a 19.8% jump in online revenues, and Numis is expecting full-year sales to hold firm at 4%.