Christmas disappoints as M&S, Tesco and Morrison feel the pressure

9th January 2014

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British supermarkets are feeling the pressure from their discount rivals as Morrison, Tesco and retailer Marks & Spencer all reported a fall in sales as conditions remain extremely competitive.

For its part Morrisons endured a 5.6% sales plunge in the six weeks to 5 January, citing its low online presence and competition by discount stores shops, such as Aldi and Lidl, as behind the fall.

Tesco, the UK’s biggest supermarket chain, said it suffered another heavy decline in underlying sales in its primary UK market over the Christmas period, falling 2.4%, below the consensus forecast in the six weeks to January.

In addition Marks & Spencer reported that sales declined for the tenth consecutive quarter and the only reason that the company has managed to avoid another profits warning is thanks to a strong performance from its food division – in other words, its new clothing ranges failed to stop the rot notes Bill McNamara, technical analyst at brokers Charles Stanley.

He says: “The shares dropped to a seven-month low of 427p last week and although they have rallied somewhat over recent sessions it would not be at all surprising if they started to move lower again in light of these disappointing figures. In fact, last June’s low, at 415p or so, is still the next area of possible support.”

Elsewhere Sainsbury’s reported that sales in the fourteen weeks up to 4 January rose by 0.2%, edging ahead of the consensus forecast.

The BBC reports that Chancellor George Osborne, in regards to today’s figures said it showed the industry is “very competitive” and that the “economic recovery is not yet secure.”

“We have to work through the long-term economic plan that is turning Britain around and we need to make sure we get balanced growth across the whole country and we get investments and exports alongside consumer spending.

“That is exactly what our economic plan is designed to deliver.”

What are the brokers saying?

Despite Morrisons results, analysts at broker Jeffries reiterated their ‘buy’ recommendation today while the consensus is saying ‘hold’.

Broker Panmure Gordon today reiterated its ‘buy’ recommendation for Tesco but again the consensus denotes a ‘neutral’ to ‘hold’ position.

Analysts are split on what to do with Marks & Spencer shares, as Numis Securities reiterated its ‘hold’ position while Investec upgraded its view to ‘buy’ as Seymour Pierce re-affirmed a ‘sell’.

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