UK’s Retail Sales Numbers Paint a Gloomy Picture As Compared To The Year 2018

UK’s Retail Sales Numbers Paint a Gloomy Picture As Compared To The Year 2018
Mounting concern of a gloomy economy ahead, Kantar- a leading global data and consulting company on July 23, 2019, revealed that UK’s retail sales declined by 0.5% on a YoY basis in the 12-weeks ended to July 14, 2019. The latest grocery market figures are lowest since June 2016. However, this was not unexpected as the retail arena posted record sales in 2018, mainly driven by the year’s hot summer. But it was assumed that sales would return to growth once relative highs of 2018 summer pass. The head of retail and consumer insights at Kantar, Mr Fraser McKevitt commented that “past twelve weeks was a crucial one for the major grocers and except Ocado Plc, growth narrowed at every highstreets supermarket amid tepid consumer spending. However, one good news for the consumer is, the Like-for-like grocery inflation softened by 0.9% but made it tough for a retailer to record a value growth. If we throw some light on the traditional summer categories, consumer spent approximately £75m lower this time against the previous year, and particularly sales of beer declined by 11% on a YoY basis, and cider sales declined by 13% against the year-ago period. Sales of soft drinks during the past one year declined in actual figures by £56m and sales of ice cream was down by £55m. Though, because the cooler weather prevailed for most of the time in the past year, it provided confectionery items with an opportunity of record growth and nudged up to an extra £68m on consumer spending. Particularly demand for chocolate surged by 15% on a YoY basis. Also, despite a challenging market condition demand for branded goods performed marginally better compared to the overall market and grew by 0.2% respectively. Lisbon-Headquartered Lidl was among the fastest-growing brick, and mortar retailer with sales surging by 7% on a YoY basis and Kantar report stated that the company recorded a sales growth of 19% in the alcohol space and reversed the market trend, this was majorly supported by the company's deal which was offering 25% discount whosoever was buying six bottles of wine. He also added that this move was pushing consumers to purchase the trolley, not the basket. Also, the company was offering some discount to the consumer when they spent £20 or above. Meanwhile, Aldi secured a record level of market share and now stands at 8.1% of sales with spending increasing by 6.7% on a YoY basis. Particularly its branded segment recorded a sales growth of 17%, however, it was accounted for less than 1/10th of the company’s sales. However, despite a challenging season, the Ocado Group Plc recorded a sales growth of 11.9% on a YoY basis and enlarged its consumer base by 6% over the year-ago period. Ocado Group Plc (OCDO) is one of the largest online grocery retailers in the UK. The company’s main objective is to provide its customer with a better shopping experience. The company divided its product based on the service, price and range. The company is currently having a customer base of over 580,000 people. Its strong business model protected it against the challenging market conditions. In fact, its customers were buying more frequently as compared to brick and mortar retailer who witnessed difficulties in the past year. During the first half of the FY19, the company’s adjusted revenue increased by 10.5 per cent to £874 million as compared to £791.2 million in H1 FY18, driven by other fees earned from Morrisons, a surge in the average number of orders per week and in spite of capacity limitations following the fire at CFC Andover. Adjusted EBITDA stood at £18.7 million, a decrease of 46.3 per cent against the £34.8 million in H1 FY18, due to the surged investment in developing the head office teams required to support the international growth, higher share incentive costs in the period and annualised costs of the Erith CFC. Adjusted loss before tax was £43 million, an increase from the corresponding period of the last year. Cash and cash equivalents stood at £360.1 million, a decrease of £87.5 million against the previous year same period data. Average orders per week had solid underlying growth, with a slight decrease in the average order size. The company signed a 50/50 joint venture with M&S to transform its online grocery shopping in the United Kingdom. Sainsbury Plc sales during the past one-year declined by 2.3% on a YoY basis and its market share in the retail arena also reduced to 15.3%, a 0.3 percentage points below the year-ago period. Sainsbury's PLC is a British chain of supermarkets, operating primarily in the United Kingdom. The company engages in grocery-related retailing and retail banking with interests in property as well. The company's brands include Sainsbury's groceries, Argos, Tu, Sainsbury's Home, Habitat and Sainsbury's Bank. The group's operations are differentiated into four operating segments: Retail – Food, General Merchandise and Clothing, Financial Services & Property Investment. The proposed merger with Asda has taken a toll on the stock as the agreement has still not been rectified by the regulatory body, with the risk of merger not getting approved. However, the company was able to attract approximately 254,000 additional customers during the past year, and with this customer visit frequency was sustained. During the H1FY19, Underlying Group sales increased by 3.5 per cent over the last year to reach £16,884 million, boosted by increased sales of food and general merchandise which was in turn helped by the high temperature in the summers. The retail underlying operating profit rose by 23.2 per cent to £335 million in H1 FY 2019, while the underlying profit before tax was up by 20.3 per cent over the last year to £302 million, driven by synergies and reduced interests costs along with a reliable food performance. The underlying basic earnings per share increased by 18.4 per cent over the previous year to 10.3p. The interim dividend of 3.1 per share was announced, in line with the company's policy of announcing 30 per cent of the full dividend paid in the prior year. Meanwhile, Tesco’s market share shrunk by 0.4 percentage points on a YoY basis and now it holds approximately 27.2% market share. Tesco Plc (TSCO) is a UK based company and engaged in the grocery retail business. The company is having global presence with United Kingdom, Poland, Ireland, Hungary, Slovakia, Malaysia, and the Czech Republic being the major markets. The company is also into retail banking & insurance services. The company serves millions of customers and have more than 6,800 stores globally. The company is the leading retailer has an employee strength of 450,000. Its key peers are J Sainsbury and WM Morrison Supermarkets Plc. In the recent trading update filed by the company with the LSE, the group reported that, on a constant rate basis, the company’s total reported revenue increased by 0.4 per cent to £13,978 million as compared to the corresponding period last year. In the UK & ROI segment, revenue surged by 1.3 per cent to £11,168 million against the previous year same period data. In central Europe segment, revenue declined by 7.9 per cent to £1,296 million, due to the store closures. In Asia segment, revenue increased by 2.6 per cent to £1,244 million as compared with the corresponding period of last year, driven by the growth in the Bangkok area. In Tesco bank segment, sales were down by 1.9 per cent to £270 million. On a like for like basis, the company’s total sales climbed by 0.2 per cent. This was because of the sales from the UK & ROI business surged by 0.8 per cent, Central Europe segment was down by 4.9 per cent, and Asia market surged by 0.1 per cent. Morrisons sales in the year-ago period declined by 2.6% and its market share reduced by 0.2 percentage points to 10.3%. However, the retailer was able to sell more on promotion compared to any other retailer. WM Morrison is a United Kingdom-based company engaged in the business of retail supermarket store and associated activities. It is the UK's second-largest food & drug retailer by market capitalisation. The company sells its product under its Morrisons brand. During the first quarter of the 2019, the group recorded a 2.3% in the sales on a like-for-basis, which included 2.1% contribution from the wholesale and 0.2% contribution came from retail. The bottom line is, retail sector in the UK is facing many problems ranging from softening consumer demand, Brexit headwinds and bad weather conditions, even though grocery sales in the next 12 months is expected to report growth as per the consensus estimates.

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