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.
- 2 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Professional big game hunter Ian Gibson crushed to death by elephant during hunt
- 4 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
Yemen crisis: Meet the child soldiers who have forsaken books for Kalashnikovs
Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
Rarest Beanie Baby of them all could be sold for £62,500 on eBay
Professional big game hunter Ian Gibson crushed to death by elephant during hunt
Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...