The diamond jubilee celebrations proved to be a rather wet affair, as the British weather lived up to expectations by raining on the Queen's parade. The deluge also contributed to a rather soggy performance from the UK's grocery industry, as first-quarter trading statements from Sainsbury's and Tesco reveal.
On the face of it, Sainsbury's has been the winner this spring - its like-for-like sales climbed 1.4 per cent in the 12 weeks to 9 June, well ahead of the 1.5 per cent underlying drop reported by Tesco. The weak figures from Britain's largest grocer were expected, but dashed any lingering hopes of a quick fix to its problems.
Tesco's numbers didn't include the Jubilee weekend, though, and analysts also point out that the performance of the two grocery giants becomes much closer when you strip out the 0.8 per cent boost Sainsbury's received from store extensions. Analysts had expected Sainsbury's to deliver a 1.8 per cent increase in like-for-like sales and, as Richard Cathcart at broker Espirito Santo notes, the "weaker than expected performance is likely to reinforce concern among investors about difficult trading conditions across the industry as a whole".
Concerns also remain that if Tesco's recovery plan fails to deliver any noticeable improvement to its figures soon, it could up its investment to win back customers, with Sainsbury's especially vulnerable. Analyst Darren Shirley at broker Shore Capital said it would be "girding its loins for whatever a self-improving Tesco can throw at it".
However, Philip Dorgan at Panmure Gordon is more positive. "Tesco is narrowing the gap, but it still has a lot to do", he said, adding that he expected Sainsbury's to deliver high single-digit operating profit growth as industry conditions stabilise in the long term. It is also gaining share in general merchandising and online grocery, which grew sales by 20 per cent in the period, and the roll-out of convenience stores was proving an important driver of growth. Convenience sales climbed 16 per cent in the period as 21 new stores were added.
On the immediate horizon, fuel prices - which in the words of Sainsbury's boss Justin King have had "an almost pound for pound" impact on grocery spending - look set to ease. Petrol prices "will probably be deflationary within a week or so", he said. And, after a decent jubilee boost at both Tesco and Sainsbury's, Mr King is sticking to his mantra that the Olympics - of which Sainsbury's is a major sponsor - will do much to lift the nation's mood this summer. He's sticking to his full-year like-for-like guidance of 2 per cent and, at 284p, investors should stick with the shares.
