After market leader Tesco PLC (LON:TSCO) raised margin worries with its annual results earlier this month, updates from rivals J Sainsbury plc (LON:SBRY) and William Morrison Supermarkets PLC (LON:MRW) will be closely-eyed for any further evidence of deteriorating conditions in the grocery sector.
Tesco shares slumped on April 12 despite the firm building on its recent revival with a forecast-beating set of results, which saw underlying profits rise by 30% to £1.28bn helping bolster support for its planned takeover of wholesale Booker PLC (LON::BOK).
READ: Tesco slumps despite better-than-expected results
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In a trading update released on March 16, Sainsbury’s move to diverse from grocery with the acquisition of high street catalogue retailer Argos looked to be paying off as its total like-for-like sales grew by 0.3%.
But in the nine weeks to 11 March 2017, a 4.3% increase in Argos like-for-like sales simply masked a 0.5% decline in Sainsbury’s struggling core supermarket business, excluding fuel sales.
READ: Sainsbury's reports quarterly decline in core supermarket sales
For the full year, analysts at Deutsche Bank expect Sainsbury to report headline pretax profits of £592mln, up marginally from the £587mln reported a year earlier, as core retail margins – excluding Argos – decline by 30 basis points to 3.0%.
In a preview, the Deutsche Bank analysts said: “While we believe that the Argos acquisition will be a success and that the core business will not experience a major margin reset … we expect mild earnings downgrades in 17E due to continued tough price competition. “
Morrison’s sales growth to continue
After the round of post-Christmas trading updates earlier this year, it was the UK’s fourth biggest player William Morrison Supermarkets PLC (LON:MRW) which was the surprise top performer as the restructuring by its new boss David Potts looked to be having an impact.
In its results for the year to January 29 2017, Morrison’s reported its first annual profit and like-for-like (LFL) sales growth since 2012, with its fourth quarter LFL sales up 2.5%, after a 2.9% rise over Christmas, and a first-quarter trading update due on Thursday should also please.
READ: Morrison’s reports first profit growth in five years
‘House’ broker Shore Capital expects the strong growth to continue for the first-quarter of the current year, albeit at a slightly slower rate, with its analysts forecasting LFL sales growth in a range of 1.75%-2.00%, which would mark a sixth straight quarter of gains.
In a preview note, the ShoreCap analysts said that, despite the toughening comparatives and a slower UK grocery market, flagged up by Tesco’s boss Dave Lewis at the supermarket leader’s full-year results on April 12, they believe that Morrison’s has “sustained positive momentum into the new financial year.”
Ocado holds annual general meeting
Morrrison’s online grocery partner Ocado PLC (LON:OCDO) will also hold its annual general meeting next Wednesday, although there is no guarantee it will provide any trading update at the same time.
READ: Ocado sees first quarter sales hold steady, but highlights pricing pressures
Back in March, Ocado revealed that its gross retail sales grow by 13.1% in its first quarter, unchanged on the same stage in the previous year, as average order volumes rose but order amount fell reflecting pricing pressures as competitors such as internet giant Amazon.com Inc (NASDAQ:AMZN).
With its domestic performance stagnating, the focus for Ocado shareholders has remained on the group signing a long awaited international partnership, but so far any news has proved elusive.