Withthe referendum dominating news headlines around the world, todayrepresents an excellent opportunityfor companies to release less-than-inspiring trading updates. With this in mind, lets see whether that holds true forthe latest set of figures from the UKs biggest retailer.
Signs of recovery
The fact that the UK goes to the polls to make one of the biggest decisions for a generation is perhaps unfortunate for Tesco (LSE: TSCO) as todays update contained some fairlyencouragingfigures. Group like-for-like sales were up by 0.9%. Sales in the UK rose by 0.3% and international sales were 3% higher, representing a second quarter of growth for the FTSE 100 giant. The new fresh food brands launched in March have been positively received by customers (with satisfaction scores for quality and taste above 90%) and areperformingin line with expectations. The disposal ofnon-core assets continues with the announcement that the 14bn capis to sell the coffee chainHarris + Hoole to Caff Nero, adding to a list of recently agreed sales that also includesDobbies Garden Centres and the Giraffe restaurant chain. This further emphasises Tescos desire to concentrate on improving its core UK business.
While reflecting that the grocery market remains challenging due to sustained deflation,CEO Dave Lewiss tone wasclearly upbeat:By growing volumes, transforming the way we work together with our suppliers, and further optimising our store operating model we are rebuilding profitability in a sustainable way.
So theupdate sends a message to the market that Lewiss strategy appears to be bearing fruit. While this kind of progress may be too slow for some, Im satisfied the company is mending its ways andreturning to what it does best, selling food. Adividend would be appreciatedbut payoutsare unlikely to be reinstated until 2017 at the earliest.
AndTescos rivals?
Like Tesco, Sainsbury (LSE: SBRY) recently issued a trading update. Here,like-for-like retail sales were down (0.8%) although total group sales were up 0.3%. While this performance isnt derisory, its not quite as good as that achieved by Dave Lewis and his colleagues. Moreover, the planned acquisition of Home Retail arguably raises more questions than it answers. At a time when UK supermarkets should be simplifying their operations, Sainsbury seems to be doing the opposite.
Nevertheless, shares in the 5bn capcurrently trade on a P/E of just over 11 and come with a dividend yield of 4.9%. This makes it the cheapest of the three listed UK supermarkets and also the one offering the highest payout.
The third piece of the listed UK supermarket pie is, of course, Morrisons (LSE: MRW). Similar toTesco, it also achieved a second quarter of growth after sales grew by 0.7% in the three months to 1 May (this figure was boosted by sales from its online store). Ithas also been attempting to simplify operations by disposing of its convenience store business and closing unprofitable stores.Analysts have pencilled-in earnings growth of around 12% for 2017 and 11% for 2018 for the Bradford-based company. Although lessthan that offered by Sainsbury, a yield of 2.65% looks sensible given current trading conditions.
The hunt for income
Dave Lewis appears to be working hard to reverse Tesco’s fortunes and today’s update, while not setting the stock market alight, will be comforting for the company’s loyal investors who’ve endured a shocking few years. Whether this makes it a better buy than Sainsbury’s or Morrisons is open to debate, however, particularly as both peers continue to pay dividends to their shareholders.
That said, those looking for a steady flow of dividends from their shares might wishto avoid these retailers completely, given the incredibly competitive sector in which they operate.
If you’re looking for well run companies generating excellent levels of income for investors, the experts at the Motley Fool are here to help. They’ve put together a special FREE report identifying a top income share they think would make a worthy addition to any dividend-focused portfolio.
Click here for your report without obligation.
Paul Summers owns shares in Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
