As the first of Britain’s ‘Big Four’ grocers to report on Christmas trade, all eyes were on WM Morrisons PLC (LON:MRW) on Tuesday – and it didn’t disappoint.
The FTSE 100 retailer is one of the most shorted stocks in London – i.e. traders betting that the share price is primed to head south – so it was something of a surprise that it saw like-for-like sales rise 2.8% in the 10 weeks to January 7.
READ: Morrisons delivers sales growth over holiday season
Morrisons strength weighs on Tesco
The strong performance from Morrisons is weighing on rival Tesco PLC (LON:TSCO) as the two compete in the same sandpit for the same customers.
To that end, the 16.8% sales growth seen by discounters Aldi and Lidl over the holiday season is also probably having a negative effect.
Given that there is a finite number of punters, if one store increases sales it is generally because it is taking shoppers from elsewhere.
Has Tesco cut prices to boost Christmas sales?
That said, Kantar has Tesco as the top performer out of the ‘Big Four’ over Christmas, with sales rising 3.1% in the three months to the end of December.
But judging by the 1.2% fall in the share price today, the market seems to think that Tesco could still be a net loser over the festive period.
The implication seems to be that Tesco has managed to grow sales volumes by cutting prices, which would put pressure on margins and, subsequently, profits.
It also suggests that the company is yet to bring through the price rises that its peers have and that the market has been waiting for.
Profit taking?
Of course, it could all be much simpler than that and the share price fall is just a result of investors taking profits ahead of Tesco’s update on Thursday.
As David Cheetham, chief market analyst at XTB.com says: “Tesco enjoyed the largest sales growth amongst its peers during December according to figures from Kantar Worldpanel and today’s decline is likely to be simply a case of profit taking after a strong run higher of around 25% in the past 6 months.”