City snapshot: Tesco Christmas sales jump despite cost of living crisis

Top story

Tesco has overcome ‘tough times’ for consumers to post strong broad-based growth in the run-up to Christmas.

Overall group retail sales were up 7.9% in the six weeks to 7 January, with UK like for like sales up 7.2% in the period.

It said its sales rise was driven by its “most competitive offering to date” and its “focus on value and quality”, with particular strength in fresh food (up 8.1%) and market-leading availability.

In particular its Aldi Price Match and Clubcard Prices helped customers spend less on festive lines, with volumes on Low Everyday Prices range up 7.4% following launch of price lock commitment in October

Meanwhile its finest festive range expanded by 22%, with overall finest sales up+8.2%, contributing to gains from premium retailers throughout the period.

Tesco saw continued strong growth across large stores and convenience; online sales returning to growth within the period, with sales 59% higher than pre-pandemic & participation stabilising at around 13%.

For the longer 19 week period sales were up 5.3% in the UK.

Over that longer period, Republic of Ireland sales were up 5.6%, Booker sales by 10% and Central Europe by 10.9%.

Booker benefitted from retail and catering both growing strongly, despite retail figures including a 6.8% drop in tobacco sales decline due to post-COVID market normalisation.

The group saw strong catering growth against a declining market as it focussed on value, including price freeze on 450 key catering lines

The group reaffirmed its full year guidance of retail adjusted operating profit of between £2.4bn and £2.5bn.

CEO Ken Murphy said: “I’m really pleased with our performance over this period - particularly the further strong growth at Christmas on top of the exceptional growth of the last few years. We’ve delivered a strong market share performance in the UK and ROI, Booker has continued to grow strongly despite a particularly tough catering backdrop and our Central European business has delivered its highest sales growth for many years.

“I’m extremely proud of the way Tesco has stepped forward to help customers dealing with tough times this Christmas. By delivering relentlessly on the strategic priorities that we set out 18 months ago, we have made sure that customers know that they will benefit from great value and quality in every part of their basket, however they choose to shop with us.

“It has been a huge team effort and I want to thank every colleague across the business for their hard work. I’d also like to thank everyone who generously supported our Winter Food Collection, which has contributed to a record 39m meals donated by Tesco and our customers so far this year.

“We go into the new calendar year with good momentum and I am confident we can continue to maintain our competitiveness and deliver a strong performance relative to the market despite the challenging conditions ahead.”

Tesco shares have eased back 0.5% to 242.4p after recent rises.

Morning update

Marks & Spencer has posted near-10% growth in group sales over the third quarter covering Christmas, as both food and clothing sales saw strong growth.

Food sales increased 10.2% with like-for-like sales up 6.3%, building on a strong Christmas performance reported in 2021.

M&S said it outperformed the market in both value and volume as it invested in quality and trusted value.

The investment it has made in its Remarksable Value range resulted in very strong growth in volumes with these lines now in over 20% of baskets, while top tier M&S Collection sales also grew by over 20%.

Sales in new renewal stores performed well with strong initial sales growth in stores such as London Colney and Oatlands Harrogate.

M&S volumes through Ocado Retail represented 30% of the average basket on Ocado.com over the Christmas peak.

Clothing and home sales increased 8.8% with like-for-like sales up 8.6% and performance well ahead of the market.

Store sales increased 12.8% with standout early performances from new stores, while online sales increased 0.7%, driven by growth of 33% through the M&S App, with a strong performance of click and collect sales.

International sales increased 12.5% at constant currency with strong retail sales growth in key franchise markets in the Middle East and owned markets including India.

M&S reiterated earlier profits guidance despite “clear macro-economic headwinds ahead and underlying cost pressures”.

CEO Stuart Machin commented: “M&S sustained trading momentum through the peak quarter and both Food and Clothing & Home have delivered strong growth.

“M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share. Clothing and Home delivered another outstanding performance, maintaining its market leadership position with its highest market share in seven years.

“This outperformance was driven by M&S doing what it does best; exceptional product at value you can trust. Thanks to our unrivalled quality, innovation and growing style credentials, more customers shopped with M&S over the Christmas period than in recent years. I would like to thank all our colleagues for the fantastic service they delivered.

“Given the inflationary pressures impacting our customers and our business, M&S is taking action to structurally reduce costs and reinforce our customer proposition. Our singular focus is on delivering the M&S Reshaped programme to drive growth and value creation as the UK’s leading omnichannel retailer. This performance across both our businesses provides confidence in delivering our full year results.”

Tesco meat packer Hilton Food Group has issued a trading update for the 52 weeks ended 1st January 2023, which it said were in line with expectations.

During the year, it said there has been continued revenue growth compared to the same period in 2021 and a “pleasing” performance in the lead-up to the festive period.

In the UK and Ireland it continued to make progress, with a strong Christmas trading period, whilst also focusing on a number of cost saving initiatives.

In addition, it continued investment in automation, the benefits of which will be seen in 2023. Recent progress to pass through and mitigate unprecedented inflationary cost increases, particularly in the UK Seafood business, have been “encouraging” and “leave us well placed as we start the new year”.

In APAC it saw strong topline growth from its three facilities in Australia and, coupled with the first full year of trading at our New Zealand food park.

Other businesses in Europe have performed well with revenue ahead of the previous year, benefiting from the acquisition of Foppen and particularly strong trading in Central Europe, driven by the continued performance of its fresh food business and Scandinavian markets.

Hilton said it remained confident of the outlook for 2023 given its recent trading performance, diversified product offering, state-of-the art facilities and technology driven supply chain expertise.

In December it announced our entry into South East Asia through a strategic partnership with Country Foods and said it continues to explore wider geographic expansion and opportunities for growth in existing markets.

Virgin Wines saw a £7m drop in sales in the six months to 31 December as inflation, cost-of-living pressures, the passing of the Queen and postal strikes hit sales in the six months to 31 December.

Total revenue for the period was £33.7m, down from £40.5m, despite strong rates of customer acquisition.

September sales were significantly affected by the pause on all marketing activities following the passing of the Queen (with an estimated impact on sales of approximately £1.7m), whilst the festive period was impacted by both external and internal issues.

The recent implementation of a new warehouse management system led to operational difficulties, creating a backlog of orders in the peak weeks to Christmas. The Company increased its labour allocation in both warehouses to mitigate these delays and manage customer service levels, resulting in exceptional one-off costs in the most recent quarter.

In addition, due to the postal strikes and the bad weather in the lead-up to Christmas, a number of couriers brought forward delivery cut-off dates and reduced trailer capacity, meaning it cut off our Christmas orders one week earlier than usual to guarantee customer deliveries in time for Christmas costing around £1.5m in lost sales.

However, it continued to attract new customers in significant numbers, with 60,000 new recruits during the period, 4% ahead of the comparable period last year and a 24% LFL increase during Q2.

The group said it continues to be profitable with strong cash reserves, and the board expects top-line performance in the next six months to remain resilient, although full year revenue and profit will be impacted by the factors that hit first half sales.

As a result, it now expects revenue for the full year to be around £63m and full year EBITDA margin to be between 4% and 5%. The Board expects underlying EBITDA margin excluding exceptional factors to be 2% higher, in the range of 6-7%.

CEO Jay Wright commented: “We are disappointed with our profitability performance over what has been a difficult trading period, which has been exacerbated by one-off exceptional circumstances. However, our underlying business model remains resilient as the consumer proposition continues to resonate strongly. We are pleased to have attracted a significantly increased number of new customers onto our WineBank scheme, our strategic partnership with Saga has started promisingly and our other commercial partnerships continue to perform well.

“Whilst being mindful of the pressures on the business, especially with regards to the high inflationary landscape, we remain confident in our future prospects, driven by the ongoing strength of the brand, our unique offering and loyal customer base.’’

Finally, property investor Supermarket Income REIT has acquired an additional stake in its joint venture with British Airways Pension Trustees Ltd.

It has acquired BAPTL’s 25.5% beneficial interest in the Sainsbury’s Reversion Portfolio for £196m, resulting in it now holding 51% of the portfolio.

The remaining 49% is held by Sainsbury’s.

The acquisition has been funded entirely by a new debt facility provided by JPMorgan Chase Bank.

On the markets this morning, the FTSE 100 is up another 0.5% to 7,765.4pts.

Early risers include THG, up 7.2% to 64.2p, Hilton Food Group, up 7.1% to 586.8p and McBride, up 3.2% to 24p.

Fallers include Virgin Wines, down 20% to 58p, B&M European Value Retail, down 4% to 433.6p and Marks & Spencer, down 1.5% to 141.2p.

Yesterday in the City

The FTSE 100 shook of Tuesday’s first drop of the year, to rise another 0.4% to 7,725pts yesterday.

Sainsbury’s fell 1.6% to 241.9p despite posting strong Christmas trading updates, though the company remains around 9% up for the year after good sales expectations were baked into its share price.

Fallers included Deliveroo, down 5% to 91.6p, Hotel Chocolat, down 2.4% to 181.5p, Nichols, down 1.8% to 1,080p, Bakkavor, down 1.8% to 100p and Britvic, down 1.3% to 758p.

Risers included THG, up 5.2% to 59.9p, PZ Cussons, up 3.3% to 218p, Pets at Home, up 2.8% to 322p, Just Eat Takeaway.com, up 2.5% to 2,083p, Premier Foods, up 2.3% to 113.8p, Tate & Lyle, up 1.9% to 760.2p and AG Barr, up 1.9% to 546p.