Kwik Save losing the bean war The Investment Column
Kwik Save's central problem is an old one now. Its once-secure niche as "Britain's number one discounter" is looking increasingly vulnerable. The superstores are encroaching on Kwik Save's territory by offering equally cheap ranges on commodity products. When Kwik Save cut the price of baked beans to 3p, Tesco matched it. And while the superstores park their tanks on Graeme Bowler's lawn, the threat from Continental discounters grows.
Kwik Save says that the only thing that is not up for grabs in the review is its position as a discounter. The question is how to deliver it. A loyalty card looks unlikely as the company does not have the systems. An extension of the range would increase already-mushrooming costs. It looks an unenviable position, which is why analysts were cutting forecasts yesterday and predicting further falls in the share price, even after yesterday's 9 per cent slump from 468p to 428p.
Yesterday's disappointing results showed the same old problems, with a few new ones thrown in. Pre-tax profits were down 28 per cent to pounds 44.2m. Though sales were up 8 per cent (or 1 per cent like-for-like) costs rocketed by 19 per cent.
Part of that rise was due to the company investing in a new distribution centre, re-writing its computer systems and staff training. And though buying terms have improved, pricing pressure on basic items such as beans, tomatoes and corned beef has hit the gross margin. The margin in the first half fell by 0.2 per cent compared with last year. There was also a warning that the margin would fall further in the second half due to continuing tough trading conditions.
Though like-for-like sales are up by 1 per cent since the year end, customer numbers continue to fall after the 3 per cent fall in the first half. The problems have forced the company to rein back its ambitious store opening programme. It will now open only 35 new stores this year, half the planned figure, reducing capital expenditure from pounds 145m to pounds 120m.
The Shoprite stores in Scotland and the North-east that were acquired last year are improving but still made a half-year loss of pounds 3m. Kwik Save shares have fallen from more than 700p last summer to yesterday's 428p. But even with analysts cutting full-year forecasts to pounds 87m, giving a price/earnings multiple of 12, they still enjoy a premium to Tesco and Argyll which is hard to justify. The shares look set to fall further. Sell.
- 1 PlayStation and Xbox hacked by Lizard Squad
- 2 Christmas comes early to Hong Kong, as millions of bank notes spill out onto busy street
- 3 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 5 Vagina canoe artist defends herself over ‘obscenity’ charges
PlayStation and Xbox hacked by Lizard Squad
Antonio Martin shooting: Black teenager may have tried to ambush patrolman, says police officer's lawyer
Katie Hopkins speaks out on childhood obesity: 'Parents of fat children should be prosecuted for child cruelty'
Boxing Day snowfall set to push even more bargain-hunters online for sales
The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Alex Salmond has 'broken his word to the Scottish people' says Scottish Lib Dem leader
iJobs Money & Business
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...