Sainsbury's, Tesco, M&S report strong Xmas trading, but will feast turn to famine in 2023?
British grocery giants () , () , and () all released upbeat trading updates this week, defying broader expectations of a slowdown in retail activity over the holiday season.
Sainsbury's
Sainsbury's Q3 statement for the 16 weeks to 7 January revealed volume performance ahead of market for the 3rd consecutive year, helped by inflation and heightened activity during the World Cup. Q3 retail sales exc. fuel were up 5.6% and grocery sales were up 5.6% year-on-year and 12.5% ahead of pre-pandemic levels.
In total, Sainsbury's recorded sales growth of 5.9% year-on-year LFL in Q3, and 7.1% year-on-year on Christmas.
Sainsbury's expects profits to be towards the upper end of guidance range £630m-690m, with retail free cash flow expected to be around £600m, ahead of previous guidance of £500m+.
Tesco
Tesco reported similarly upbeat Q3 figures, with group retail sales for the 19 weeks to 7 January up 6.4% year-on-year LFL, with particularly strong performance in Central Europe, up 10.9%. Over Christmas, Tesco recorded a 7.9% sales increase year-on-year LFL.
Tesco noted increased market share of +46bps year-on-year, with strong performance in online sales, up 9.6%.
Tesco Bank outperformed as well with sales up 14.6%, driven by an increase in credit card spending and money services transactions, as consumer behavior continued to normalise post-pandemic.
Tesco reaffirmed its FY22/23 guidance, expecting retail adjusted operating profit of £2.4bn-£2.5bn, retail free cash flow of at least £1.8bn, and bank adjusted operating profit of c. £120m-£160m.
M&S
Last but not least, M&S delivered strong Christmas trading performance in the 13 weeks to 31 December, with total UK sales up 7.2% LFL, and total group sales up 9.9%.
Clothing and Home outperformed, achieving over 10% market share, highest since 2015. Store sales increased 12.8%, and international sales jumped 12.5% in constant currency with particularly strong growth in the Middle East and India.
To tackle the effects of inflation, M&S said it is taking action to structurally reduce costs, most notably through its M&S Reshaped programme. The imitative aims to drive value and growth, leveraging M&S' position as the UK's top omnichannel retailer.
M&S warned of "clear macro-economic headwinds ahead and underlying cost pressures", but expressed confidence in the guidance set out at its interim results in November.
View from Vox
With minor caveats, all three retailers expressed general optimism about future sales, based on strong performances over the Christmas period, and defying expectations of a difficult holiday season as the cost of living crisis continues to pressure British consumers.
Being the first post-pandemic Christmas period, and helped by World Cup excitement and government relief, consumers were willing to relax their belts a little and enjoy the holidays.
Naturally, much of the extra cash pocketed by retailers in Q3 was the result of inflation rather than increased sales, with inflation in the UK clocking in at 9.3% in November, and reaching even higher for groceries. Therefore, while all 3 retail giants maintained positive guidance, they are in every case preparing for consumers checking their spending at least until inflation begins to abate in the second half of the year per current BoE forecast.
Should that post-Christmas retreat in consumer spending materalise, supermarkets will be ready with price wars in the form of Aldi price matches, increased loyalty rewards, and other schemes designed to retain customers through the cost of living crisis, made possible by broad internal cost cutting measures. Continuing price wars of this kind is what we expect to see from major grocery chains and the broader retail sector in 2023 - it's not time to pop the champagne corks yet.
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