LONDON MARKET PRE-OPEN: Tesco Has Strong Christmas But Primark Suffers

(Alliance News) - Stock prices in London are seen opening higher on Thursday on hopes for fresh ...

Alliance News 14 January, 2021 | 7:55AM
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(Alliance News) - Stock prices in London are seen opening higher on Thursday on hopes for fresh US financial support under the incoming Biden administration, as Congress took the unprecedented step of impeaching the outgoing president for a second time.

In early company news, the UK's largest supermarket Tesco enjoyed a strong Christmas period as sales of high-end food grew. Premier Inn chain owner Whitbread's trading felt the effects of lockdown restrictions. Primark clothing store owner Associated British Foods warned lockdowns will cause sale loss of more than GBP1 billion.

IG futures indicate the FTSE 100 index is to open 22.78 points higher at 6,768.30. The blue-chip index closed down 8.59 points, or 0.1%, at 6,745.52 on Wednesday.

Tesco said a strong UK sales performance was sustained in the third quarter as shoppers splurged on the grocer's 'Finest' food products range over the Christmas holiday period.

For the third quarter to November 28, Tesco reported group like-for-like sales growth of 5.7%, while Christmas trading in the six weeks to January 9, like-for-like sales growth was 5.4%. In the UK, like-for-like sales growth was 6.7% for the quarter and 8.1% for the Christmas period.

Tesco said UK sales grew across all formats, channels and categories. Online sales growth was particularly marked at over 80%, equating to nearly GBP1 billion extra sales over the 19-week period.

Looking ahead, Tesco said guidance for the 2021 financial year is unchanged, and it remains confident that retail operating profit is likely to be at least at the same level as in 2020, excluding the repayment of business rates relief. In financial 2020, Tesco posted retail operating profit of GBP2.81 billion.

However, Tesco increased the estimate of its incremental costs of dealing with the Covid-19 pandemic in financial 2021, such as increased staff absence, to GBP810 million from GBP725 million.

Whitbread said its third-quarter performance reflects the damage inflicted by the ongoing Covid-19 government restrictions in the UK and Germany, where it operates hotels.

For the third quarter to November 26, total like-for-like sales growth was down 56% and year-to-date was down 70%.

Premier Inn UK total sales were 55% down in the third quarter reflecting the ongoing UK government restrictions on the operation of hotels and restaurants, which have forced closures of non-essential businesses. As a result, total UK accommodation sales were down 55% with occupancy at 49%.

Whitbread said with the increased restrictions, total UK accommodation sales were down 66% for the 5 weeks to December 31, with occupancy at 31%.

Following the updated UK government restrictions announced earlier this month, Whitbread said around two-thirds of hotels remain open, while all restaurants are closed.

"We expect the current travel restrictions in the UK and Germany to remain until at the very least the end of our financial year. With the vaccination programme underway, we look forward to the potential gradual relaxation of restrictions from the Spring, business and leisure confidence returning, and our market recovering over the rest of the year" said Chief Executive Officer Alison Brittain.

"We are well placed to continue to outperform the increasingly constrained budget branded and independent competitor sets, by leveraging the benefits of our unique operating model. We expect to see increasing opportunities to develop in both the UK and Germany and are pleased to have accelerated our growth in Germany with the recent acquisition of 13 hotels, taking the open and committed pipeline to 68 hotels, a major step on our path to achieving a nation-wide footprint with representation in most major towns and cities," Brittain added.

Associated British Foods said that for the 16 weeks ended January 2, revenue was 13% lower than the same period last year, at constant currency.

AB Foods said its Retail performance, meaning the Primark clothing store chain, was materially hurt by the increased restrictions on the movement of people and trading activity put in place again by UK and European governments, principally during November and late December, to limit the spread of Covid-19.

Primark sales were 30% lower than last year at constant currency and 28% lower at actual exchange rates.

The company's estimate for the loss of sales in the periods of closure during these 16 weeks is GBP540 million. While stores were open, AB Foods said trading was strong given the circumstances, with sales down 14% on a like-for-like basis compared to last year.

AB Foods said uncertainty about store closure periods in the short term has increased. Making the assumption that all of the stores currently closed remain closed until the financial half year point, on February 27, the loss of sales caused by temporary store closures would reach around GBP1.05 billion. This is up from the previous estimate of GBP650 million, it said.

"The impact of store closures on Primark's performance is significant. We now expect full year sales and adjusted operating profit for Primark to be somewhat lower than last year. We will continue to expand retail selling space. The lower profitability of Primark, and the consequent change in the weight of profit by tax jurisdiction for the group will result in an increase in the group's effective tax rate for the year from the 25% previously advised," the company said.

In the US on Wednesday, Wall Street ended mostly higher, with the Dow Jones Industrial Average flat, S&P 500 up 0.2% and Nasdaq Composite up 0.4%.

President-elect Joe Biden on Thursday will unveil his plan to revive the US economy, as evidence mounts that its recovery from the coronavirus pandemic is flagging despite trillions of dollars in government spending.

With his fellow Democrats narrowly controlling both houses of Congress, Biden appears to have a good shot at passing a third massive rescue package that could include everything from another round of stimulus payments to tax hikes on the rich to an increase in the minimum wage.

"We need more direct relief flowing to families (and) small businesses, including finishing the job of getting people the USD2,000 in relief," Biden said last week, referring to the last package that provided payments of USD600 in direct payments.

The funds could help spark a recovery that appears to be buckling under the weight of the nationwide surge in Covid-19 cases.

"Stocks continue to rise as the compelling picture for the US economic recovery will continue to benefit from US government fiscal support," said Axi's Stephen Innes.

Meanwhile, Donald Trump became the first US president in history to be impeached twice when the House of Representatives voted Wednesday to charge him with inciting last week's mob attack on Congress.

The Senate will not hold a trial before January 20, when Biden assumes the presidency, meaning the real estate tycoon will escape the risk of being forced to leave early.

Powerful Republican Senate leader Mitch McConnell has made clear there is no time before Trump's January 20 exit to hold an impeachment trial, given that the Senate is in recess until January 19. However, he said Wednesday that he was open to the possibility of voting to convict Trump in a trial, which could still be held after Biden takes over.

The pound was quoted at USD1.3651 on Thursday morning, up from USD1.3629 at the London equities close Wednesday. The euro was priced USD1.2148, lower than USD1.2158. Against the yen, the dollar was trading at JPY104.05, up from JPY103.92.

Brent oil was quoted at USD56.01 a barrel Thursday morning, down from USD56.21 a barrel at the London equities close Wednesday. Gold was quoted at USD1,841.26 an ounce, down from USD1,857.59.

The Japanese Nikkei 225 index closed up 0.9%. In China, the Shanghai Composite ended down 0.9%, while the Hang Seng index in Hong Kong is up 0.6%.

China's trade surplus with the US widened last year despite a partial trade deal requiring Beijing to boost purchases, official figures showed.

China's customs administration data showed the surplus climbed 7.1% to USD316.9 billion, with outbound shipments boosted by sales of electronics goods and protective gear. Although the world's second-largest economy sufered a record contraction in the first quarter of last year as the coronavirus brought activity to a halt, it soon recovered as lockdowns in the country were eased and medical exports soared.

For the whole of 2020, China's exports rose 3.6%, although imports shrank 1.1%.

In Thursday's economic calendar are Irish inflation at 1100 GMT and minutes from the European Central Bank's last meeting at 1230 GMT. US continuing jobless claims are due at 1330 GMT, and US Federal Reserve Chair Jerome Powell speaks at 1730 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Associated British Foods PLC 2,304.00 GBX 1.68
Whitbread PLC 3,152.00 GBX 1.58 -
Tesco PLC 242.30 GBX 0.08

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