April 17, 2018

Pegler’s market report – 17.04.18: Some good cheer from Tesco

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (17.04.18) Business section under the title Pegler’s Market Report:

Some good cheer from Tesco

Tesco is aiming to grab another £2.5bn of sales in the UK as it teams up with wholesaler Booker to sell its products to independent corner shops, restaurants and cafes.

The UK’s biggest supermarket unveiled the plan as it announced a 28pc rise in operating profits, bolstered by better than expected sales growth in the last three months of its financial year.

Tesco’s results provided the market with some good cheer as the group reported pre-tax profits of £1.3bn for the year to February – the first-time annual profits have exceeded £1bn since 2014. UK like-for-like sales rose 2.2pc, driven by food sales, which were 2.9pc higher.

Tesco has already begun testing a mini version of Booker, badged Chef Central, at one of its supermarkets and is considering using its home delivery vans to serve Booker’s clients, which include restaurants and independent convenience stores. Apparently, there are about 100 Tesco locations which could be suitable for Chef Central because Booker does not have a cash and carry nearby. Tesco is also rumoured to be planning to test a new discount chain or family wholesaler similar to Costco, however senior management declined to comment on those rumours.

Dunelm has enjoyed much better trading, of late, on hopes that the home furnishings company can survive the high street slump intact after shrugging off the recent cold snap that has impacted so many of its peers. Falling sales in John Lewis’s homeware department, one of Dunelm’s largest competitors, had hinted at another troubled quarter for the company. Many analysts believe that Dunelm has beaten the ‘Beast from the East’ and emerged, from a challenging quarter for non-food retailers, relatively unscathed. Dunelm’s sales growth indicates that the company continues to make significant gains in market share.

UK manufacturing contracted in February after almost a year of expansion, prompting economists to downgrade their expectations for UK economic growth in the first quarter of 2018. Manufacturing output fell 0.2% compared with January – its first decline since March 2017 – according to the Office for National Statistics. UK manufacturing was bolstered last year by a combination of the weak pound and stronger global growth.

Construction sector output also contracted 1.6% in February, extending January’s decline. The fall was driven by a steep reduction in the volume of infrastructure and took construction’s year-on-year drop to 3%.

Some economists are now forecasting a slowdown in economic growth to 0.3% for the first quarter of 2018, down from 0.4% in the previous quarter, with the March snow likely to have hit retailers as well as builders and factories. The National Institute of Economic and Social Research also forecast that growth slowed in the first quarter – to just 0.2%.

This week we get further data on UK unemployment, pay and consumer inflation.

By David Pegler, Brighton Capital Management