Winners of vicious price war unveiled this week

HOPES that the retail sector has defied the worst fears of investors will be tested this week with updates from Marks & Spencer, Tesco and Debenhams.

HOPES that the retail sector has defied the worst fears of investors will be tested this week with updates from Marks & Spencer, Tesco and Debenhams.

Winners and losers in a vicious supermarket price war launched prior to Christmas will be revealed when three of the biggest players update the market.

Battle for sales gathered pace after Tesco introduced its Big Price Drop, Asda guaranteed to be 10% cheaper than rivals and Sainsbury’s launched a price-matching scheme. Increased competition from discounters Aldi and Lidl also upped the ante.

On top of this, supermarkets have been slashing prices in a frenzy of promotions ahead of the crucial Christmas trading period, which is likely to have hurt profits.

The biggest supermarket Tesco, which has 2,700 UK stores and will update on Thursday, recently reported falling sales for the fourth quarter in a row, despite its £500m price-cutting campaign. Its woes are expected to continue as rivals breathe down its neck by opening more stores and competing harder on price.

Matthew Truman, an analyst at JP Morgan Cazenove, forecast that Tesco’s underlying sales will fall 1.5% over the Christmas period, compared to a 0.9% fall in its previous quarter.

Sainsbury’s, which updates on Wednesday, has been fighting its corner by rolling out its Brand Match scheme, which pledges to match thousands of prices at rivals Tesco and Asda.

Initiatives such as Live Well for Less and its Feed your Family for £50 weekly meal planner have boosted its appeal.

Its recent performance has been strong, with sales up 1.9% in its most recent quarter, and the City expects it to reveal similar gains over Christmas. Unlike Tesco, its figure includes VAT.

Morrisons is expected to report sales have slowed as the price wars take their toll.

The grocer, which has some 450 stores in the UK, has fared better than its main supermarket rivals in recent months because it sells relatively small amounts of non-food items. The City expects like-for-like sales growth, excluding VAT and fuel of 1%, compared to 2.4% in the previous quarter.

On the high street, Mothercare’s sales misery is expected to have continued over Christmas as supermarkets and online competitors steal its business.

The group, which has 353 UK stores and 969 overseas, recently reported a 7% fall in underlying UK sales in the 28 weeks to October 8 and slipped to an £81.4m loss.

Analysts at Seymour Pierce expect further falls of 9.2% in the second half of its financial year. This is despite Mothercare’s December performance having come up against easier figures from the previous year when Arctic weather kept shoppers away.

M&S reported profits of £320.5m for the six months to October 1, a drop of 8% on a year earlier and the company’s first slide in earnings for two years.

The City will be looking for an update on the progress of a £600m revamp that it hopes will make its outlets easier to shop in and boost sales of its own brands.

Christmas was not so sweet for ailing chocolatier Thorntons as the group was hit by intense competition and shattered consumer confidence.

The group, which has 579 stores in the UK, warned just before Christmas that pre-tax profits would be around break-even in the year to June, compared with £4.3m in the previous year, and is expected to reveal a further slump in sales on Thursday.

Thorntons, which plans to shut 180 stores over the next three years as part of a turnaround programme, has suffered as cash-strapped consumers cut back on chocolate treats.

Elsewhere, Home Retail Group is forecast to unveil a dismal festive season as its main business Argos suffered at the hands of greater competition and a weak electricals market. And department store Debenhams will reveal whether its heavy price cutting paid off when it publishes its first quarter trading update today.

 

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