Top UK Stocks to Watch: Tesco sees sales momentum slow as lockdown eases

Tesco delivers growth despite facing strong comparatives, Carnival to restart Princess Cruises this September, Telecom Plus profits to recover after taking a knock during the pandemic, Kerry Group sells its meats and meals business, and Inchcape performs better than expected.


Top News: Tesco sales continue to grow but at slower rate

Tesco revealed it managed to keep up the momentum in the first quarter of its financial year as sales continued to grow despite coming up against strong comparatives from last year when shoppers started panic buying as the pandemic hit.

The UK’s largest supermarket chain said total retail sales came in at £13.36 billion during the 13 weeks to May 29. That was up 1% on a like-for-like basis compared to the year before, when it delivered 7.9% sales growth as shoppers rushed to stores to stock up as the pandemic erupted and lockdown was introduced.

Notably, quarterly LfLs were 8.1% higher than the same period two years before, marking significant growth from pre-pandemic levels.

‘We delivered a strong performance in the first quarter, even as we lapped the high demand of last year due to the pandemic.  We have further strengthened our commitment to delivering consistent, reliable value and to rewarding loyalty, as we extended Clubcard Prices to all Express stores,’ said chief executive Ken Murphy.

LfLs in the UK and Ireland were up 1.3% year-on-year, offsetting a 1.6% decline in Central Europe. Meanwhile, its wholesale unit Booker reported 9.2% growth in the quarter and posted sales higher than when the pandemic hit as it benefited from leisure sites reopening as lockdown rules were eased in April.

Tesco said online demand remains strong, fulfilling 1.3 million orders a week and suggesting that the shift to online grocery shopping is sticking even as lockdown starts to end. Quarterly online sales jumped 22% year-on-year, benefiting from the increased capacity built up over the last year, and sat nearly 82% higher than two years ago.

It also flagged particularly strong performances for sales of general merchandise, with sales up 10% year-on-year, and clothing, up 52%.

‘Our profit guidance from April remains unchanged.  While the market outlook remains uncertain, I'm pleased with the strong start we've made to the year and continue to be excited about the many opportunities we have to create value over the longer term,’ Murphy said.

Where next for the Tesco share price?

Tesco share price has been forming a series of higher lows. The top side has been capped by 233p. The price rebounded lower off 233p earlier in the week. Today the selloff is extending. The RSI is moving lower in bearish territory, suggesting more downside to come. 

So far, the Tesco share price is finding support at the 50 & 200 sma on the daily chart at 226p the ascending trendline support is also just below here at 224p. Beyond here is 222p support. A break below this level could negate the near-term uptrend and spark a move towards 217p. 

On the flip side, any recovery will be looking for a move above 233p. 

Carnival set to restart Princess Cruises in US this September

Carnival has announced that Princess Cruises will return to service in the US when it starts to set sail this autumn.

Cruises onboard eight Princess MedallionClass ships will operate between September 25 and November 28, setting off from Los Angeles, San Francisco and Fort Lauderdale and taking guests to the Caribbean, the Panama Canal, Mexico, Hawaii and the California Coast.

Importantly, they will only carry passengers that have had both doses of their coronavirus vaccine – a blanket rule for all of its cruises and that of most of its competitors this year.

‘As we continue our return to service, it is a thrill for us to be able to bring more cruise vacation options to our travel-starved guests,’ said the president of Princess Cruises, Jan Swartz.

The start date has been announced following discussions with officials at the Centre for Disease Control and Prevention. The final details regarding how the likes of dining, entertainment and offshore excursions will work in the current environment will be unveiled in the ‘coming weeks’.

‘We will continue to monitor the latest guidance from the CDC as well as local, state and federal officials in the ports we sail from and those we visit and will adjust our on board protocols and vaccination requirements, as necessary. Should our vaccination approach change, we would notify guests prior to final payment,’ Swartz added.

Carnival has been announcing plans to restart cruises over recent weeks. This includes the resumption of cruises on Seabourn and Cunard from next month and the maiden voyage of Mardi Gras this August.

However, it has had to postpone the restart on numerous occasions due to the ever-changing picture of the pandemic and confidence has been hit after it was reported last week that a trip on board a Royal Caribbean cruise was hit by two cases of coronavirus despite everyone on board being vaccinated. Still, the CDC lowered its warning for cruises yesterday from Level 4, which recommends avoiding all travel, to Level 3, which recommends vaccinated people can travel.

In a separate statement, Carnival announced it will be releasing a second-quarter update next week on Thursday June 24.

Carnival shares were trading 0.5% lower in early trade this morning at 1747.5p.

Telecom Plus expects profits to return to pre-pandemic levels

Telecom Plus has said it expects profits to start returning to pre-pandemic levels in the new financial year after lower energy prices and additional costs weighed down its bottom-line during the year to the end of March.

The company, which has over 48,000 partners selling the opportunity to consolidate all your home services from utilities to insurance under one monthly bill, said annual revenue dipped to £861.2 million from £875.8 million the year before, with its partners finding it harder to drum up new business amid lockdown restrictions.

Although customer numbers grew by 0.8% and core service numbers were up 2.5%, both saw a marked slowdown compared to the year before.

Adjusted pretax profit fell to £56.1 million from £60.8 million, while reported pretax profit fell to £43.5 million from £48.1 million. The decline in profits was down to lower energy prices following the new price cap introduced last October, higher regulatory costs, and because of extra spending adapting to the pandemic.

‘Against the challenging backdrop of the past year, I am very pleased with the resilient performance of the business, and incredibly proud of the spirit that our staff and Team Purple - our 48,000 Partners - have demonstrated throughout the period.,’ said chief executive Andrew Lindsay.

‘We are emerging from the pandemic with considerable optimism about the future: as millions prepare to return to their workplaces after prolonged periods of working from home, the alternative flexible income opportunity that we offer our Partners has never held such appeal,’ he added.

Telecom Plus also left its dividend flat for the year as promised at 57.0 pence.

Telecom Plus said it anticipates delivering adjusted pretax profit of around £60 million in the new financial year, adding that its dividend will remain flat again.

Telecom Plus shares were trading 1.4% lower in early trade this morning at 1206.0p.

Inchcape remains confident profits can start to recover in 2021

Car dealership Inchcape said demand has continued to improve at a faster rate than expected while margins have held up well in a challenging environment, keeping it on course for the full-year.

In a short update, the company said the encouraging trends seen in the first quarter of 2021, when it reported a 2% organic sales rise and a smaller decline in overall sales, have continued and that it has performed better than expected since its last update in late April.

‘During the period we have seen our businesses benefit both from an uptick in demand and margin resilience,’ Inchcape said.

‘There is still a high level of uncertainty about the second half, both in terms of the pandemic situation and issues relating to supply due to shortages of semi-conductors, which have had a limited impact on the group to date,’ the company added.

The news sent Inchcape shares 4.8% higher in early trade this morning at 801.0p. Inchcape shares have gained more than 20% since the start of 2021.

Inchcape reiterated its goal to deliver annual adjusted pretax profit ‘significantly ahead’ of the £216 million forecast by analysts for this year. That would compare to the £129 million profit delivered in 2020, which had more than halved from the £326 million profit delivered in 2019 before the pandemic hit.

Inchcape will release interim results on July 29.

Kerry Group sells meats and meals business for EUR819 million

Kerry Group said it has agreed to sell its Consumer Foods’ Meats and Meals business in the UK and Ireland for a total of EUR819 million to Pilgrim’s Pride Corp.

The news sent Kerry Group shares up 3.5% in early trade this morning at 109.65p.

The assets being sold-off generated revenue of EUR828 million and a pretax profit of EUR63 million in 2020, ending the period with gross assets worth EUR521 million.

The Meats part of the business produces branded and private label meats and meat-based products in the UK and Ireland, including well-known labels like Richmond, Denny, Galtee, Rollover and Fridge Raiders.

The Meals business makes chilled and frozen ready meals, ready-to-cook ranges and home delivery meals for the UK market.

The sale will generate cash for Kerry to invest in its Taste & Nutrition business and significantly slims down its Consumer Foods business, which will predominantly focus on dairy-related products after the sale is completed before the end of this year.

‘Kerry's strategy for the past 30 years has been to continuously evolve our portfolio, as we progressed on our journey to becoming a market-leading Taste & Nutrition company. This transaction further enhances Kerry's focus as a leading business to business ingredient solutions provider for the food, beverage and pharmaceutical markets,’ chief executive Edmond Scanlon said.

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