Are These Three Supermarket Stocks Under Fire: TSCO, SBRY and MRW?

The retail industry contains any business or individual involved with selling products directly to consumers. Related sectors include the wholesale sector (which supplies to retailers), the logistics sector (which connects wholesalers and producers with retailers), and the manufacturing sector (which produces the products sold by retailers). This briefing paper focuses on the retail sector. The retail sector includes department stores, market stalls, door-to-door salespeople, supermarkets, shops, and internet retailers.

Supermarkets are a fundamental component of the retail landscape in the UK. Such markets offer people to buy their food and other essential items and they are innovative businesses that have transformed the retail environment with global brands under its list. But their role and position in the retail landscape have changed in recent years. According to the market share, the major companies are Tesco PLC, J Sainsbury PLC, and WM Morrison Supermarkets PLC. Recently, the decline in the market share of these three players was accompanied by the rapid rise of the lower costs, online presence and changing consumer behaviour, etc.

Retail Sales Overview

The underlying performance in retail sales looks softer, as the monthly growth rate (May-19) for both the amount spent and the quantity bought was down by 0.3 per cent and negative 0.5 per cent respectively. Retail sales excluding auto fuel declined by 0.3 per cent as compared to the previous month, while the value spent on it fell by 0.1 per cent. Non-food sales volumes fell by 0.5% month-on-month in May and were up by a modest 0.9% year-on-year, and Food sales dipped by 0.1% month-on-month in May and were up just 0.3% year-on-year. After slowing to just 0.2% in April (the lowest level since November 2016), the annual retail sales deflator rose back up to 0.4% in May.

At the time of writing (as on June-25-19), Consumer Non-Cyclicals sector performance was down by 0.17 per cent as compared with the previous day data point.

Tesco PLC

Tesco PLC (TSCO) is a British-based retail company and is one of the world’s largest retailers of consumer goods. The group primarily operates as a grocery retailer but also provides insurance and retail banking services. Operations are primarily differentiated in two operating divisions: Retail, which includes retailing and associated activities, and Tesco Bank, which comprises of banking and insurance services.

In Q1 FY2020, on a constant rate basis, the company’s total reported revenue increased by 0.4 per cent to £13,978 million as compared to the corresponding period last year. In the UK & ROI segment, revenue surged by 1.3 per cent to £11,168 million against the previous year same period data. Revenue from UK market decreased by 0.4 per cent to £9,088 million, revenue from ROI rose by 2.7 per cent to £567 million, and revenue from booker climbed by 12.4 per cent to £1,513 million. The booker revenue was increased because of the surge in the customer count and improved offer in fresh food. In central Europe segment, revenue declined by 7.9 per cent to £1,296 million, due to the store closures. In Asia segment, revenue increased by 2.6 per cent to £1,244 million as compared with the corresponding period of last year, driven by the growth in the Bangkok area. In Tesco bank segment, sales were down by 1.9 per cent to £270 million.

On a like for like basis, the company’s total sales climbed by 0.2 per cent. This was because of the sales from the UK & ROI business surged by 0.8 per cent, Central Europe segment was down by 4.9 per cent, and Asia market revenue surged by 0.1 per cent respectively.

Share Price Performance

Daily Chart as at June-25-19, before the market closed (Source: Thomson Reuters) 

On 25th June 2019, at the time of writing (before the market close, GMT 3:21 PM), TSCO shares were trading at GBX 229.50, down by 0.78 per cent against the previous day closing price.

Stock’s 52 weeks High and Low is GBX266.80/GBX187.05. From the previous three months, Tesco Plc share price was down by 0.81 per cent, and in the last one year, the stock was down by 11.62 per cent. Stock’s average traded volume for 5 days was 40,800,924.80; 30 days – 23,949,668.43 and 90 days – 20,953,649.40. The average traded volume for 5 days was up by 70.36 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.19, reflecting higher volatility as compared to the benchmark index. Total outstanding market capitalisation was around £22.65 billion, with a dividend yield of 2.49 per cent.

J Sainsbury PLC

J Sainsbury’s PLC (SBRY) is a British chain of supermarkets, operating primarily in the United Kingdom. The company engages in grocery-related retailing and retail banking with interests in property as well. The group’s functions are distinguished into four operating segments: Retail – Food, General Merchandise and Clothing, Financial Services & Property Investment. The proposed merger with Asda has taken a toll on the stock as the agreement has still not been rectified by the regulatory body, with the risk of merger not getting approved.

On May 01, 2019, the retailer reported its full-year financial results for the period ended on March 09, 2019. The Group’s underlying revenue including VAT for the period FY19 surged by 2.1% to £32,412 mn against the FY18 revenue. Underlying before tax profit surged by 7.8 per cent to £635 mn, primarily because of strong food performance and reduced interest costs. Also, the underlying retail operating profit rose by 10.7 per cent to £692 mn and Sainsbury’s underlying retail sales (including VAT) were up by 2.1 per cent to £31,871 mn. Statutory Post-tax profit stood at £219 mn and declined by 29.1% from £309 mn in FY18.

In FY19, the group has delivered a cost saving of £220 mn. Underlying net finance costs narrowed by 19.3% to £96 mn. The board of the retailer-proposed a final dividend of 7.9 pence, and with this, the total dividend per share for FY19 stood at 11.0 pence and witnessed a surge of 7.8% against FY18.

Share Price Performance

Daily Chart as at June-25-19, before the market closed (Source: Thomson Reuters) 

On 25th June 2019, at the time of writing (before the market close, GMT 3:40 PM), SBRY shares were trading at GBX 187.18, down by 0.44 per cent against the previous day closing price.

Stock’s 52 weeks High and Low is GBX341.80/GBX185.30. From the previous three months, J Sainsbury PLC share price was down by 20.61 per cent, and in the last one year, the stock was down by 40.79 per cent. Stock’s average traded volume for 5 days was 15,033,565.20; 30 days – 10,597,739.77 and 90 days – 10,322,638.10. The average traded volume for 5 days was up by 41.86 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.97, reflecting slightly lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £4.16 billion, with a dividend yield of 5.85 per cent.

WM Morrison Supermarkets PLC

WM Morrison Supermarkets PLC (MRW) is a United Kingdom-based company engaged in the business of retail supermarket store and associated activities. WM Morrison is focused on helping customers to save money on a daily basis by providing permanently low prices product offerings. The company sells its product under its Morrisons brand.

In Q1 FY2020, the company’s like-for-like (LFL) sales surged by 2.3 per cent (excluding fuel). The increased sales were driven by an increase in sales from the retail business by 0.2 per cent and wholesale business contributed with 2.1 per cent for the period. Total sales for the period increased by 2.9 per cent including fuel and 2.4 per cent excluding fuel. The sales from retail business remained strong and the company was able to deliver positive like-for-like sales in Q1 FY20 for the fourth consecutive year. There was economic and political uncertainty impacting the confidence of consumers. Sales during the festive season (Easter period) remained strong as LFL was up by 1.7 per cent on last year and 3.4 per cent on a two-year basis. The company’s wholesale business also made significant growth in Q1 FY2020.

Share Price Performance

Daily Chart as at June-25-19, before the market closed (Source: Thomson Reuters) 

On 25th June 2019, at the time of writing (before the market close, GMT 3:48 PM), MRW shares were trading at GBX 196.65, down by 1.18 per cent against the previous day closing price.

Stock’s 52 weeks High and Low is GBX265.33/GBX192.15. From the previous three months, WM Morrison Supermarkets PLC share price was down by 9.57 per cent, and in the last one year, the stock was down by 18.69 per cent. Stock’s average traded volume for 5 days was 15,616,415.40; 30 days – 9,006,961.57 and 90 days – 7,972,258.58. The average traded volume for 5 days was up by 73.38 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.73, reflecting lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £4.72 billion, with a dividend yield of 3.32 per cent.

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