Conveniencestore groupMcColls(LSE: MCLS) reported its interim results for the six months ended 31 May 2015 today. The company revealed that like-for-like sales across the group declined by 1.9% during the period.
Total revenue expanded 3.4% after including the contribution of new store sales. 25 news stores have been acquired during the period. Sales in newsagents and standard convenience stores slumped 4.5% and operating profit before exceptional items ticked lower by 6% to 9.6m.
Nevertheless, despite these lacklustre operating performance figures, McColls adjusted earnings per share for the period increased 45% to 6.1p, and managementhiked the groups interim dividend payment by 100% to 3.4p.
Signs of a turnaround
McColls results show that the company is starting to struggle in the UKs increasingly competitive retail market.
However, according to figures fromKantar Worldpanel, which estimates grocers sales performance by monitoring till rolls,Tescos(LSE: TSCO) sales declines are starting to moderate.
During the twelve weeks to 19 July, according to Kantars figures Tescos sales fell 0.6% compared to the year-ago period. The groups market share fell to 28.5% during the period, from 28.9% as reported a year ago.
Looking at the trend over the past year its clear that shoppers are slowing their exodus from Tescos stores. For example, during the first quarter of last year, Tescos UK sales fell by 4%, which marked a low point in the companys performance. By the fourth quarter of 2014 declines had slowed to 1.7% and during the first quarter of 2015, Tescoslike-for-like sales fell by 1.3%, defying theexpectations of analysts, who predicted a slump of between 1.6% and 3%.Like-for-like volumes rose 1.4% during the 13 weeks ended 30 May 2015.
And although Kantars figures are only supposed to be an indication of sales trends, they do hint at the fact that Tescos sales are starting to stabilise.
Income vs. growth
When it comes down to it, Tesco looks to be a better play on the retail sector than McColls. Its really a question of size.
Tescos size gives it an edge over most of its peers. Whats more, the groups international operations, which are currently up for sale, will provide a much-needed cash infusion to help the group return to growth.
That said, McColls does have its strengths. The groups shares currently support a dividend yield of 6.5% and the payout is covered 1.8 times by earnings per share. The shares trade at a 2015 P/E of 9.8, making McColls one of the cheapest stocks in the retail sector. Earnings growth of 6% is pencilled in for 2016 and a dividend yield of 6.7% is predicted. However, as noted above while McColls earnings may be increasing, the companys like-for-like sales figures are deteriorating, which could be a problem.
You see, management is looking to have 1,000 McColls stores open by the end of 2016, up 19% from the end of May.Although, with sales falling its questionable if the group should be expanding. After all, Tescos downfall was driven by the companys desire to chase floor space over customer needs and wants. McColls could be making the same mistake.
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Rupert Hargreaves owns shares of Tesco. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.