- Title: Tesco caps year of recovery with solid Christmas
- Date: 12th January 2017
- Summary: LONDON, ENGLAND, UK (JANUARY 12, 2017) (REUTERS) (SOUNDBITE) (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "The Aldis and the Lidls of this world are continuing to improve their market share. They are continuing to compete and that is going to be a big concern for Tesco, especially at a time when they are facing a challenging year of rising input costs. It is always a lot more difficult to pass on these costs to the consumer when there are already low-cost retailers who are stealing market share from them."
- Embargoed: 26th January 2017 16:53
- Keywords: Christmas retailers 2017 Marks and Spencer outlook Brexit Tesco recovery UK
- Location: LONDON, ENGLAND, UK
- City: LONDON, ENGLAND, UK
- Country: United Kingdom
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA0065YRY3D9
- Aspect Ratio: 16:9
- Story Text: Britain's biggest retailer Tesco reported its best quarter of UK underlying sales growth for over five years and more growth over Christmas, continuing a major recovery in its fortunes, though it cautioned it would not be immune to inflationary pressures.
Tesco, which like rivals has been battling the rise of German discounters Aldi and Lidl and has also had to deal with the fallout from an accounting scandal in 2014, said on Thursday (January 12) progress across the group meant it could reiterate forecasts for its 2016-17 financial year.
Tesco said it was on track to deliver a group operating profit before exceptional items of "at least" 1.2 billion pounds ($1.47 billion) in 2016-17, up from 944 million in 2015-16.
Shares in Tesco have increased 29 percent over the last year, but were down 2.1 percent by 1248 GMT.
That reflected a strong run this week ahead of the sales update and the fact that, unlike smaller rivals Morrisons and Sainsbury's, Tesco met, rather than surpassed, analysts' expectations.
Other analysts, however, expressed concern about slowing UK sales momentum in the closing weeks of 2016 and international sales below expectations. Some highlighted flagging general merchandise sales too.
Investors have also expressed concern about a potential squeeze on UK consumer spending this year as inflation, driven by sterling's devaluation since Britain's vote in June to leave the European Union, begins to erode real earnings growth.
"These companies are experiencing an extraordinarily difficult 2017. 2017 is the year when we are going to see the currency depreciation in the UK have in impact on input costs and this will have to transpire into smaller margins or higher prices. And that's when the consumer will start to be affected and that's the numbers could start to turn a little bit sour for these companies again," said OANDA Senior Market Analyst, Craig Erlam.
Marks & Spencer soundly beat forecasts for Christmas trading with its first quarterly increase in clothing and homeware sales in nearly two years, delivering a welcome boost for new boss Steve Rowe.
After taking the helm in April, Rowe instigated the latest in a long line of recovery strategies for M&S's under-performing clothing and homewares business. He was rewarded with an unexpected 2.3 percent jump in the division's like-for-like sales in the 13 weeks to Dec. 31.
Clothing sales beat market expectations of a slender rise of 0.2 percent, while food sales also beat forecasts. Food was up 0.6 percent, against predictions of a slight fall.
M&S's numbers were helped by five days of the busy post-Christmas sale falling into the quarter, which had a positive effect of about 1.5 percent on clothing and 0.3 percent on food.
M&S shares rose by as much as 6 percent to a six-month high after Thursday's update. They later gave up some of the gains to trade up 1.3 percent at 344.8 pence by 1554 GMT.
Britain's biggest department store John Lewis said it needed to invest heavily in its online business this year after 40 percent of total sales came from the internet over Christmas, showing the speed of change ripping through the industry.
Britons have embraced online shopping in recent years, with new collaborations enabling shoppers to buy online and pick up goods at a network of third-party outlets such as petrol stations, railway stations and post offices.
The John Lewis department store posted underlying sales up 2.7 over the six weeks to December 31, with online sales up 11.8 percent and shop sales up 0.8 percent. Waitrose like-for-like sales rose 2.8 percent.
However, group chairman Sir Charlie Mayfield also acknowledged that tougher times could lie ahead for big retailers.
"What we have got is there are pressures on costs, there's pressures on prices and those things are happening and you've got the consumer who, you know, who knows what happens next year but the predictions are that we're going to see a slowdown in the growth in consumer income," he said. - Copyright Holder: REUTERS
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