Tesco upgrades its outlook, while M&S warns on higher costs

Having seen Sainsbury share price slide sharply after failing to raise its guidance yesterday, Tesco is slightly more optimistic doing what Sainsbury couldn’t after a similarly solid quarter and pre-Christmas trading update, raising its full year retail adjusted operating profit outlook to £2.75bn, up from £2.6bn to £2.7bn.

This upgrade has seen the shares edge higher in early trading, but the lift has been modest at best.  

On the numbers themselves, Q3 like for like sales rose by 6.6%, with UK sales seeing an increase of 7.3%, with the pre-Christmas period slowing slightly to 6.4%, which was still a record performance for the period. On a percentage basis these are much lower increases than we saw from Sainsbury yesterday but still point to a resilient performance.

The Booker business also performed well with pre-Christmas sales growth rising to 4.1% against a quarterly rise of 3.9%.

Like Sainsbury, Tesco said it had improved its market share over the period, helped by price cuts on 2,700 products as well as various Clubcard discounting which saw penetration rise to 83%.

We’ve also seen a solid performance from Marks and Spencer with their Q3 numbers showing a 7.2% increase in total group sales to £3.85bn, helped by a strong performance from its food division while the international business saw a -6.4% decline.

The UK business saw like for like sales increase by 8.1% with the food business contributing a 10.5% increase in total sales to £2.33bn, with M&S claiming they served more customers than ever before.

That said the performance from clothing and home wasn’t too shabby, with a 4.8% increase in sales to £1.24bn, helped by a strong performance from womenswear.

On the outlook M&S was more cautious citing uncertainty around economic growth, as well as higher than anticipated wage and business rate costs, and this uncertainty has prompted further weakness in the share price, despite M&S saying that full year results were likely to come in line with expectations.

As we look back at this week’s updates from these 3 high street stalwarts, and the retail sales numbers from the BRC, it is apparent that consumers do have money to spend as the cost-of-living crisis continues to ease, but it is also clear that they are careful about where they spend it.

This week’s share price weakness appears to be reflective of modest profit taking after recent strong gains from all three retailers against the backdrop of an economy that while struggling isn’t as weak as many people previously though it might be. 

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