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UK grocers Sainsbury (LSE:SBRY) and Tesco (LSE:TSCO) published their interim results this morning. The overall news for Sainsbury was not so bad; for Tesco, not so much. Nonetheless, the share price of both grocery chains placed a burden on the FTSE from which has spent the day trying to recover.
Follow a good report, Sainsbury shares have fallen by 4.9 pence (1.26%) to 385.3 whilst Tesco shares plunged 10.95 pence (3.05$) to 348.15. The FTSE opened at 6460.01 and sank to 6,386.18 before 9:00 am.
Tesco
Although Tesco reported a 1.9% revenue growth on like-for-like sales (excluding petrol and VAT) for the first half year, it recorded a 7.6% decline in trading profit, from £1,718 million to £1,588 million on a 51 basis points decline in trading margin from 5.44% to 4.93%. Tesco took its biggest margin hit in Europe, where it operated on a rather unhealthy 1.2% margin. Pre-tax profit declined by 23.5% year-on-year from £1,814 million to £1,387 million.
Tesco is in the process of reassessing and adjusting its international operations, going “to those markets which offer us significant growth potential to deliver strong returns, such as Korea, Malaysia and Thailand.” The company is exiting its flailing Fresh & Easy venture in the U.S. whilst waiting for regulatory approval to invest in a 20% stake in the China Resources Enterprise Ltd, the largest food retailer in mainland China. The venture will include over 3,000 stores.
Meanwhile, the modest results to date of the “Building a Better Tesco” campaign have been hampered by a decline in “consumer confidence and spending, leading to a lower level of sales than expected.” Nonetheless, the company believes that its plans will lead to at least a mid-single digit increase in revenue by the end of the year.
Sainsbury
Sainsbury’s trading statement was a bit more positive as it reported Q2 sales up 4.6% (also excluding petrol) and like-for-like sales up by 2.0%. First half sales increase by 4.0%, with like-for-like up 1.4%.
Sainsbury CEO, Justin King, seized the day when he declared that, “We are the only major supermarket to be growing market share.”
ATTENTION BOYS AND GIRLS! – Were you listening? That bears repeating: “[Sainsbury is] the only major supermarket to be growing market share.”
That’s not a value that you can’t find in a company’s financial statement, but its importance is significant. Sainsbury is growing market share. That is worthy of considerable note, especially when its sales and profit are on the increase. To be sure, part of Sainsbury’s growth is due to its pursuit of online business, which is a very sage move. The company’s online sales now exceed £1 billion per year, and it has recently launched Mobile by Sainburys, a move that is visionary.
Grocery shopping has never been quite as exciting as what we may see in the days ahead as these Tesco seeks to buttress its business and as Sainsbury seeks a bigger market share.
