Last year was the worst on record for UK grocer stocks. Short sellers are betting it won’t stop there.
Rivals have siphoned off market share from J Sainsbury and William Morrison Supermarkets, sending both stocks tumbling more than 29 per cent in 2014 and making them the most- shorted companies in the FTSE 100 Index, data compiled by Bloomberg show.
Adding to obstacles, the lowest UK inflation on record has hindered grocers’ ability to boost revenue. New management, turnaround plans and rebounds in holiday sales might not be enough to counter a broader consumer shift to German discounters Aldi and Lidl.
Then there’s Tesco. Britain’s largest supermarket chain swung from the worst performer on the FTSE All-Share Food & Drug Retailers Index last year to the best in 2015, rising 23 per cent. An accounting scandal and sales slump almost halved Tesco’s market value, sending the food index down a record 35 per cent in 2014. Short interest in Tesco is well below peers at 2 per cent, according to London-based research firm Markit.
Both Sainsbury and Morrison have taken steps to combat market-share losses amid a cultural shift where British shoppers are skipping weekly trips to big supermarkets in favour of online shopping and more frequent visits to smaller stores. Aldi and Lidl have gained prominence by offering a limited selection of private-label goods.
Sainsbury is reducing prices on more than 700 items and plans to cut jobs as analysts see earnings plunging 20 per cent this year, the biggest drop in a decade. They estimate profit at Morrison will tumble 51 per cent, according to data compiled by Bloomberg, and the company last month said Chief Executive Officer Dalton Philips will leave after five years at the helm.
Bloomberg News, edited by ESM
