With food inflation having fallen to its lowest level in two years, that could be a game-changer for the supermarket giants. So too could the eventual trickle-down effect of more-money-in-people’s-pockets on the budget airline industry. So can investors in the likes of Tesco, Sainsbury’s and easyJet hope to see the start of promising green shoots of growth this spring?
Here is a round-up of some of the stocks to keep an eye on in April as these companies issue their latest results or trading updates.
This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results this month.
From the moment they arrived on these shores, the big five supermarket chains knew the German discounters Aldi and Lidl were going to be a problem. And sure enough, the battle for dominance of the lucrative grocery sector has been waging for years. The push and pull for customers has played out most fiercely during the cost-of-living crisis.
But Tesco, Sainsbury’s, Asda, Morrison’s and Waitrose – and now also arguably a sixth player, M&S – have all held their own, to some extent. Annoyingly for all of them though, so too have Aldi and Lidl.
The thorn-in-the-side that the German discounters have now long been, will have just irritated Tesco, the largest of the UK’s supermarkets once again. Tesco has received a ruling to stop using its Clubcard logo in its current form. That is because it was found to infringe Lidl’s trademark use of a yellow circle on a blue square; a ruling that will be simultaneously galling, embarrassing and costly for Tesco.
But is the ongoing battle with the German discounters anything more than an annoyance? For consumers it has arguably been beneficial; forcing the big players to sharpen their game by reducing prices in a bid to retain or even gain customers. For the likes of Tesco, as the UK’s number one grocer, with the positioning, branding and buying power to go head-to-head with ease, it hasn’t proved too much of a challenge.
In its new year trading statement Tesco revealed it now has a 27.9% share of the supermarket sector in the UK. Online it has seen its dominance strengthen too, taking a 35% share of the grocery market. Christmas and third quarter trading generated online sales growth of 11.5%, topping the 10% growth it achieved in the first half of the current financial year; proving that its number one spot is being cemented not eroded.
Even despite the cost-of-living crisis, like-for-like sales increased by 6.4% in the 19 weeks to 6 January. This prompted an increase in the company’s financial guidance for the year. It now expects adjusted retail operating profits of around £2.8bn, against a previous forecast of between £2.6bn and £2.7bn.
The fact that grocery inflation has fallen to its lowest level in two years, changes the game significantly. While squeezed shoppers may not have felt the benefits yet, with inflation and most notably food price inflation falling significantly, shoppers will gradually notice an improvement in their spending power and start to become less price conscious.
This will give retailers the opportunity to raise prices and increase profit margins. And that will please Tesco. Its sheer size and its market positioning means no-frills operators, that offer little more than low prices, are unlikely to steal its crown.
The offloading of most of its banking business to Barclays for £600m will be welcomed by shareholders. The push into financial services that Tesco and other supermarket chains did back in the 1990s, on the assumption that they could win significant market share relatively cheaply, has increasingly proven to be incorrect.
Barclays will take on Tesco Bank’s credit cards and unsecured personal loans, totalling about £8.3bn of lending balances. It has also signed a 10-year distribution deal to sell financial products under the Tesco brand. As part of the agreement, Tesco will keep its insurance, ATMs, travel money and gift card operations, which it described as “capital-light”, profitable businesses with a strong connection to Tesco’s core retail offer.
Tesco chief executive Ken Murphy said the disposal would generate “greater value for customers and for our business” and would allow the supermarket chain to “bring customers new and innovative propositions, which will continue to benefit from Tesco Clubcard’s unique insight and digital capabilities”.
Tesco full-year results are due out on 10 April.
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Another supermarket that has recently made a partial exit from its 1990s foray into financial services, Sainsbury’s has announced plans to boost shareholder returns. It has pledged to commit to a “progressive dividend policy from the start of next financial year” and a £200m share buyback.
The UK’s second-largest supermarket chain, with a 15.7% share of the UK food market, is also hatching a series of strategic initiatives, aimed at attracting more shoppers to its stores.
Alongside talk of offering more choice and affordable prices to customers, a refined loyalty scheme and “a right-sized organisation”, Sainsbury’s said it would have to increase capital expenditure to do this.
Sainsbury’s says it’s looking at increased capex spending of between £800m and £850m a year from £700m to £750m, plus an additional £70m for its charging network for electric vehicles over the next financial year. The company, which owns Argos and the Tu clothing brand, also said it would take a £150m one-off cash hit as a result of the three-year plan.
Chief executive Simon Roberts has described it as “really the time now to make targeted investment that successful grocery businesses will need to make”. Adding that “many of our competitors will not be able to make those investments, or make them cost effectively, at this point in time.”
The last time Sainsbury’s announced a similar strategic overhaul was back in 2020, when it said it was focused on putting food at the heart of the business in an effort to stop shoppers switching to Aldi and Lidl. Perhaps now, like Tesco, it realises it needs to bolster its proposition – and offer something in addition to low prices – to keep customers coming back.
The retailer has 596 supermarkets and 821 convenience stores. Its clothing arm Tu and Argos business have dragged down the retailer’s recent performance. Currently only 15% of Sainsbury’s supermarkets offer its full food range.
While grocery sales rose 9.3% in the 16 weeks to 6 January, boosted by both premium ranges and promotions, general merchandise sales, which include those of Argos, disappointed with a 0.6% fall. Clothing sales were down 1.7%.
Sainsbury’s says it expects to have taken £1.3bn of costs out of the business over the past three financial years to March 2024. It plans to create more space for food in many stores by reallocating some space currently occupied by general merchandise and clothing although it would “tighten the focus” on these two areas.
The lacklustre performance of general merchandise, during a three-year period in which Roberts has focused on sharpening the chain’s food offering to simultaneously compete with higher-end rivals such as Waitrose and the discounters, is now clearly back in focus.
Sainsbury’s full-year results are due out on 25 April.
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Investors in airlines stocks have had a particularly bumpy ride over the past few years. Not least those who took a punt on low-cost flag-flyer easyJet. But with passenger numbers on routes across Europe set to rise from 102% to 108% on 2019 levels, could that be set to change?
Cost is key. Customers have been increasingly cost-conscious and easyJet’s decision to move into package holidays has proven to be a shrewd move. Profits here rose from £13m to £30m year-on-year as customer numbers rose by 48%. Although it expects this rate of growth to level off, the company still predicts a rise in customer numbers of 35% in the current year.
Cost however is not the only focus for easyJet. The low-cost carrier has already seen a “short-term” impact from conflict in the Middle East. The suspension of flights to Israel and Jordan was, it said, a blow, but was also accompanied by a “temporary slowdown” in bookings across the sector affecting all airlines.
Travel confidence seems to be returning though which would be good news for summer 2024. Signs that consumers are prioritising travel have prompted airlines to increase flights over summer. According to travel data company OAG, European airlines will have 817.5m seats available between April and October. That’s the highest number on record. Meanwhile consensus estimates from FactSet, suggest that adjusted operating profits for the six largest European carriers are expected to hit €10.5bn in 2024, up from €9.2bn last year.
EasyJet said it had been filling two planes a minute during its busiest booking periods since the start of this year. Encouragingly, the airline has also said prices were “well ahead” of the same period last year, suggesting consumers are becoming marginally less price-sensitive.
A comparison of average air fares across Europe last summer lends weight to that too. Air fares were 20-30% higher over summer 2023 compared with 2019, according to EU data published in October.
That certainly will have helped easyJet to a record summer last year. Revenue rose 42% to £8bn in the 12 months to September. That saw easyJet move into the black, with a pre-tax profit of £455m, following a loss of £178m the year before. Shareholders were rewarded, with a dividend of 4.5p a share, amounting to a £34m pay out in total.
easyJet’s half-year results are due out on 18 April.
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The summer season could be equally as telling for recruitment giant Hays, as it is for low-cost airline easyJet. For Hays, all eyes will be on whether the seasonal uptick in job hires happens after a Christmas hiring season that fell flat.
Back at the start of January Hays issued a warning over profits, saying there was a “clear slowdown” in the global jobs market. All the recruiters have struggled in recent months in a difficult jobs market. Hays said both permanent hires and temporary placements were affected.
At the first-half reporting stage in February there was more bad news to come. Of no real surprise then was news of further job cuts after its interim pre-tax profits plunged by over 70% to £27.6 million in the six months to 31 December.
Net fees fell 11% to £583m as the company’s markets weakened over the first half. Germany was the only country to turn in any sort of fee growth over the period. Overall, fees from permanent hiring fell 17% in the three months to the end of December, compared to the year before, while temporary placement fees came in 5% lower. The steepest declines were seen in the UK and Ireland and Australia and New Zealand. Fees compared with the same period last year fell 17% and 20% respectively, in those regions.
Operating profits before exceptional charges came in as, as forecast in January, down 38% at £60.1m.
While it watches redundancies mount globally, Hays’ management had its own plans to reduce its headcount by between 3% and 4% in the third quarter, in a bid to cut costs. This comes on top of the 9% of roles it slashed in 2023.It cut its fee-earning consultants by 12%, and by 7% in the final six months alone, to 7,971.
April’s third quarter trading update is unlikely to make for easy reading. That is due out on 17 April.
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Unilever may have Wall’s, Magnum and Ben & Jerry’s among its stable of household brands, but for how much longer? The ice cream business, which accounts for 16% of Unilever’s global sales, is to be spun-off. Most probably by the end of 2025, according to Unilever’s new chief executive Hein Schumacher, who said it’s likely to be separately listed on the stock market, although he’s open to other options.
Going too are 7,500 jobs at the consumer goods group, which employs around 128,000 people. That’s part of a three-year plan to cut costs by €800m and get the company back on track. It’s long been lagging rivals, like Procter & Gamble and Schumacher has been given clear instructions that all that needs to change. Investors would undoubtedly welcome that too.
For a company that sells a host of seemingly innocuous household favourites, from ice cream to Marmite, Unilever hasn’t been without its fair share of controversy. And Ben & Jerry’s has been at the centre of a fair amount of it.
Unilever has repeatedly distanced itself from Ben & Jerry’s political views, but its subsidiary’s activism has increasingly threatened to tarnish the brand and drag Unilever with it.
That’s not the reason for the proposed spin-off, according to Unilever though. That is more down to the fact that the ice cream business has few synergies with the rest of the group’s home, food and personal care businesses. It is more capital intensive and volatile, with lower operating margins of 10.8% in 2023, compared with 16.7% for Unilever as a whole.
It might be the end of an era – Unilever has been in the ice cream business since 1922, when it bought Wall’s – but it’s not the first time Unilever has divested one of its businesses. And the ice cream business could end up being sold outright. Private equity group CVC bought Unilever’s tea business for €4.5bn in 2021 while KKR acquired its spreads business in a €7bn deal in 2017.
The strategy going forward, according to Unilever, is about “doing fewer things, better, with greater impact to drive consistent and stronger top-line growth, enhance productivity and simplicity, and step up Unilever’s performance culture.”
Unilever’s first quarter update is due out on 25 April.
More on Unilever
Five-year share price performance table
| (%) As at 26 Mar |
2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 |
|---|---|---|---|---|---|
| Tesco | 5.4 | 23.1 | 25.3 | -4.5 | 23.1 |
| Sainsbury’s | -7.5 | 25.5 | 10.2 | 6.4 | 6.3 |
| easyJet | -39.6 | 47.9 | -36.4 | -9.5 | 19.1 |
| Hays | -12.7 | 25.6 | -11.6 | -3.5 | -9.1 |
| Unilever | -4.7 | 4.1 | -13.1 | 28.7 | -2.0 |
Past performance is not a reliable indicator of future returns
Source: FE, as at 26.3.24 Basis: Total returns in GBP. Excludes initial charge.