3 supermarket stocks to hold despite decline in consumer confidence

Highlights

  • The GfK’s Consumer Confidence Barometer fell five points to minus 13 in September 2021
  • Sainsbury sales rose by 1.6% year-on-year (excluding fuel), while online grocery sales increased by 29% year-on-year in Q1 2021.
  • Morrison’s revenue, including fuel, grew by 3.7% year-on-year to £9.05 billion for the half year ended 1 August 2021.

UK’s consumer confidence is being heavily impacted by the rising anxiety associated with the surging cost of living. The GfK’s Consumer Confidence Barometer fell five points to minus 13 in September 2021, the lowest level in twelve months. Moreover, all survey measures, including personal finances, dropped to minus four, and the general economic situation declined 10 points to minus 16 over the last 12 months.

The consumer confidence index registered a three-point drop to minus six in the major purchase index, which indicates consumer confidence towards big-ticket purchases. This is emerging as a cause of concern for retailers with the holiday season just around the corner.

Tesco, Sainsbury & Morrison: One year return and market cap

(Data source: Refinitiv)

Here we review the investment prospect in UK’s 3 leading retail chains.

Tesco Plc (LON: TSCO)

Tesco is a UK-based multinational retailer of groceries and general merchandise. It operates in the UK through 3,400 stores. Recently, the company announced the closure of pumps and rationing of fuel due to the shortage of HGV drivers and inconsistencies in the supply chain. Tesco’s shares traded at GBX 259.55, down by 0.80% at the day’s close on Thursday 23 September 2021.

For the quarter ended 29 May 2021, Tesco’s retail sales totalled £13,362 million, and total fuel sales were £1,440 million. The company recorded 1.3 million online orders per week during the quarter.

In the last one year, the shares of Tesco returned 15.97% to shareholders, and the market capitalisation stood at £20,230.01 million as of 23 September 2021.

J Sainsbury Plc (LON: SBRY)

Sainsbury is a leading food retailer and supermarket chain in the UK. The company registered continued growth in on-demand sales. Its Chop Chop, a 60-minute delivery service, is currently available across 49 stores, and Deliveroo and Uber Eats are now in 230 stores, representing an increase of 42 stores during the quarter.

Sainsbury’s shares traded closed at GBX 295.90 on Thursday, 23 September 2021. In the last one year, the shares of Sainsbury returned 46.49% to shareholders, and the market capitalisation is £6,899.30 million as of 23 September 2021.

For Q1 2021, ended 26 June 2021, Sainsbury sales rose by 1.6% year-on-year (excluding fuel), while online grocery sales increased by 29% year-on-year. The company’s grocery sales were driven by higher in-home consumption on account of the continued imposition of COVID-19 restrictions. 

Morrison (Wm) Supermarkets Plc (LON: MRW)

Morrison is a UK-based supermarket chain. The company also operates online supermarkets. Recently, Morrisons rolled out the UK’s first ‘zero waste’ stores, which will be fully operational by 2025. Its shares traded flat at GBX 291.10 at the day’s close on Thursday 23 September 2021.

Morrison’s revenue, including fuel, grew by 3.7% year-on-year to £9.05 billion for the half year ended 1 August 2021 compared to £8.73 billion in the previous year. Its net cash inflow was recorded at £266 million for the half-year. Its statutory profit before tax declined by 43.4% year-on-year to £82 million for the period compared to £145 million in the same period in the previous year.

In the last one year, the shares of Morrison returned 62.04% to shareholders, and the market capitalisation stood at £7,089.01 million as of 23 September 2021.

Conclusion:

Increasing food and fuel prices, rising taxes, supply chain issues causing shelves to remain empty, and the end of the furlough scheme is expected to impact consumer confidence as they foresee an increase in the cost of living. The decline in consumer confidence is expected to lower spending, thereby dampening the overall economic prospects.

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