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Tesco (TSCO) and Waitrose have both managed to drive underlying sales growth over Christmas, but Marks & Spencer (MKS) lost out to Aldi and Lidl as like-for-like food numbers declined. However, the shine was taken off Tesco’s results by the impact of the Palmer & Harvey collapse.

The Tesco recovery continued in the 19 weeks ended 6 January 2018 as strong fresh sales and volumes helped group revenues in UK & the Republic of Ireland jump 2.7% in the third quarter.

The supermarket said it passed on less inflation than its competitors in the quarter to help mitigate impact of price increases for customers.

It also reported a record Christmas as like-for-like sales increased 1.9% in the UK, with its biggest-ever sales week, driven by fresh food market outperformance of almost 4%.

However, 3.4% growth in like-for-like food sales was dragged back by ongoing weakness in general merchandise and lost tobacco sales following the collapse of Palmer & Harvey.

“We have continued to outperform the market throughout this period, particularly in fresh food, thanks to our most competitive offer for many years,” CEO Dave Lewis said.

“Our trading momentum accelerated across the third quarter and into December, with the four weeks leading up to Christmas Day delivering record sales and volumes in the UK.

“Incorporating Palmer & Harvey volumes and complexity during this peak period was challenging, resulting in lost tobacco sales across December and putting further strain into our distribution network, particularly post-Christmas. Whilst I am pleased to say these challenges have now been resolved, they took the shine off an otherwise outstanding performance for the period as a whole.”

He added: “Our colleagues and supplier partners have done a fantastic job serving our customers better every day throughout this exceptionally busy time, and I want to thank them for everything they have done.

“We are confident in the outlook for the full year and are firmly on track to deliver our medium-term ambitions.”

Group like-for-like sales, including the international business, grew by 0.6% for the 19 week period, with total sales (excluding fuel) up 0.8% at constant exchange rates and by 1.8% at actual exchange rates.

Shares in Tesco, which earlier this week was declared the Christmas winner of the big four supermarkets based on data from Kantar Worldpanel, have plunged 4.1% to 203.3p as markets opened this morning on disappointment on the impact of the Palmer & Harvey failure on its results.

Booker (BOK) was also dragged down 3.1% to 225.7p as a result. Morrisons and Sainsbury’s were also affected by the malaise, falling 0.8% to 227.7p and 0.7% to 252.1p respectively.

Morning update

Booker (BOK) has continued to see strong growth in the third quarter, but declining tobacco sales are still a drag. The wholesaler, which is one step closer to completing a £3.7bn merger with Tesco after receiving CMA formal clearance in December, said non-tobacco sales rose by 5.9% in the 16 weeks to 29 December 2017, with non-tobacco like-for-likes up 6.2%.

Group tobacco sales declined by 2.6%, with tobacco like for likes down 2.1%. As a result, total sales were up 3.4% and like-for-likes were up 3.8%.

Both the catering and retail sides of Booker Group made good progress, the business said in a trading update that was moved forward from tomorrow. Premier continued to grow and Budgens and Londis were “performing well”.

CEO Charles Wilson said: “Booker Group had another good quarter with like-for-like non tobacco sales up 6.2%. We continue to ‘Focus, Drive and Broaden’ our business to improve choice, prices and service for our customers.

“The proposed merger with Tesco is progressing as planned. We are very grateful for the support we have received from customers, suppliers, shareholders and colleagues during this process.”

A Christmas boost was not enough to stop food sales declining for a second quarter in a row at Marks & Spencer as bumper festive seasons for discounters Aldi and Lidl ate into the high street bellwether’s share.

Total food revenues increased 3.6% to £1.7bn in the 13 weeks to 30 December, helped by new store openings, but like-for-like sales fell 0.4% – although this was less than forecast by analysts in the City.

M&S said ongoing trading pressures continued in the lead up to Christmas hurt the food business as consumer spending and choices reflected tighter budgets.

Price investment before Christmas and a strong performance from seasonal lines helped late trading, it added.

Total group sales for the quarter slipped 0.1% to £3.2bn as the struggling clothing & home division reported a 2.3% drop to £1.2bn and international revenues plunged 9.8% to £309m.

“M&S had a mixed quarter with better Christmas trading in both businesses going some way to offset a weak clothing market in October and ongoing underperformance in our food like-for-like sales,” CEO Steve Rowe said. “As a result, full year guidance remains unchanged.”

He added: “We continue with the accelerated transformation programme we outlined in November and have recently taken several important steps to reshape the business for the future. These include a new technology partnership and organisation, and the sale of our Hong Kong based business in line with the streamlined franchise-led model we are adopting for International.”

Marks & Spencer shares fell 2.3% to 316.6p offsetting some of the gains made earlier in the week (see below in Yesterday in the City).

Waitrose shrugged off the challenge of the discounters to the high end of the market, with like-for-like sales jumping 1.5% in the six weeks ended 30 December.

Its gross sales (excluding revenues) for the period were £928m, up 1.4% on the previous year. The business, part of the John Lewis Partnership, said if the numbers included trading on New Year’s Eve, like-for-like growth would have been 2.2%.

However, John Lewis Partnership chairman Sir Charlie Mayfield said that pressure on the group’s margins had intensified as it soaked up higher costs and kept prices competitive.

Waitrose’s online business performed “very strongly” in the festive period, recording the biggest week of sales in its history.

The Christmas performance was driven by an increase in the number of tastings in its stores of new products, such as chocolate and ginger mince pies. It said the one-day-only offers were also “very successful” and drove footfall.

Waitrose also launched 500 new festive products, including Heston Citrus Sherbert Lazy Gin, which sold a month’s worth of stock in one day, and sales of its premium range Waitrose 1 products were up by 4.2% in volume.

Gross sales at the John Lewis Partnership were up 2.5% versus last year to £1.96bn, with John Lewis gross sales up 3.6% to £1bn (3.1% on a like-for-like basis). Black Friday was John Lewis’s most successful sales day in its history and contributed to the biggest ever week of sales, up 7.2% year-on-year

Mayfield said: “We traded well during the Christmas period, with gross sales in the six weeks to 30 December £1.96bn, up 2.5% on last year, with 1.4% sales growth in Waitrose and 3.6% in John Lewis.

This was due to the exceptional hard work and commitment of our partners. We focused on our differentiated product offering, attention to service and strong value proposition, underpinned by our Never Knowingly Undersold promise.

“The pressure on margin seen in the first half of the year has intensified because of our choice to maintain competitive prices, despite higher costs mainly due to the weaker exchange rate. This will negatively affect full-year financial results as indicated previously.

“Looking ahead to 2018/19 we expect trading to be volatile due to the economic environment and anticipate that competitive intensity will continue, driven by the structural changes taking place in the retail industry. We are well placed to continue building the strength of our two leading brands through these changes and will maintain our current investment plans. Our focus continues to be offering our customers the best range of products and the best value, supported by a market leading service.

“As usual, bonus will be decided in March. The board expect to continue their policy of strengthening the balance sheet and maintaining investment for the future. As indicated at the half year, we expect our debt ratio at January 2018 to be higher than last year’s four times. Over the long-term, we continue to target a debt ratio of around three times.”

Tesco red meat packer Hilton Food Group (HFG) said in a pre-close trading update that its performance in 2017 was in line with expectations. It reflected growth in a number of existing and new markets, as well as the positive impact of foreign currency translation.

In Western Europe, Hilton continued to grow the business, with higher turnover particularly in the UK and Ireland. In both Sweden and Denmark, sales have been slightly up, with strong Christmas fresh pizza sales in Sweden. In Holland, although sales were lower, reflecting consumer demand, the business continued to perform well. In Central Europe, performance improved in the second half in line with expectations, as we continue to adapt our business model to the local environment.

SOHI Meat Solutions, its joint venture company in Portugal, continued to demonstrate progress as Hilton executed against the development plan in conjunction with Sonae, its JV partner.

Hilton’s joint venture in Australia also progressed well, with the Victoria plant delivering year-on–year growth as expected. Development work for the new Queensland facility has continued in line with plan, with construction having commenced.

Following the general meeting on 6 November, Hilton completed the acquisition of UK fish packer Seachill for £80.8m.

“Hilton’s trading outlook remains positive, with growth prospects underpinned by the expansion plans announced in the last year covering Australia, Portugal, Central Europe and New Zealand, as well as further opportunities arising from the Seachill acquisition,” the group said. “The group’s financial position is strong, positioning us well for further expansion. Hilton remains well placed to deliver continued growth over the medium term enhanced by further opportunities to develop our cross category business in both domestic and overseas markets.”

Premium mixer brand Fever-Tree (FEVR) has appointed Kevin Havelock and Jeff Popkin as non-executive directors with immediate effect. Havelock, 60, has more than 25 years’ drinks industry experience and is currently global president of refreshment at Unilever with responsibility for the group’s €10bn revenue global beverages and ice cream business. Since joining Unilever in 1985, he has held a wealth of senior leadership positions around the world, including chairman for Unilever UK, Unilever France and Unilever Arabia, as well as president for Unilever North America. He has been a member of the Unilever executive committee since 2011 and sits on the group’s sustainability board. He also co-chairs the Pepsi/Lipton tea joint venture and became a trustee of both the British Council and The Eden Project in 2017.

Popkin, 53, has significant experience across the North American beverage industry gathered over almost 30 years with particular expertise in sales and distribution in the US. His experience spans the beer, spirits, premium non-alcoholic carbonated soft drink and health & wellness beverage categories for a range of global brands. His leadership roles have included CEO of Red Bull distribution in North America, president of Vita Coco and he is currently North American CEO of Mast-Jägermeister.

Fever-Tree chairman Bill Ronald said: “On behalf of the board, I am delighted to welcome Kevin and Jeff to Fever-Tree. They both have highly impressive track records across the beverage sector and a breadth of relevant international experience that will bring valuable insight and additional perspective to the company.

“As well as being highly respected sector leaders, Kevin and Jeff are both huge admirers of Fever-Tree and I have no doubt they will make a significant contribution to the next stage of Fever-Tree’s growth as we continue to pioneer the global mixer category.”

Yesterday in the City

Sainsbury’s (SBRY) surged another 2.2% yesterday to 253.9p as it lifted its annual profit expectations thanks to higher synergies coming from the Argos acquisition. The supermarket had a strong Christmas week, with record sales, contributing to a 1.2% increase in retail sales in the 15 weeks to 6 January. However, general merchandise sales declined 1.4% in the third quarter as Argos struggled. Shares in the group are up 5% in the past two days after a strong Christmas performance by Morrisons fuelled investor confidence.

Morrisons (MRW) lost some of the ground it made on Tuesday as shares fell 1.2% to 229.5p, and Tesco also slipped back 1.2% to 211.9p ahead of its results this morning.

Marks & Spencer, which also reported this morning, by contrast jumped 1.8% to 324p.

SSP Group (SSPG), Ocado (OCDO), Unilever (ULVR) and Cranswick (CWK) were among the big fallers of the day, down 4.3% to 626p, 3.6% to 409.1p, 1.9% to 4,005.5p and 1.6% to 3,262p respectively.

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