Somerfield still has problems
The Investment Column
Wednesday 22 January 1997
The cut price float was such a debacle that it made it all the more crucial that the company did not disappoint with yesterday's maiden set of results as a public company. Mr Simons even started his presentation with a slide showing the slogan "delivering the goods".
This was only partly the case. Though half-year profits of pounds 54.6m were in line with expectations and the margin increase to 3.4 per cent was also good news, the longer-term prospects still look poor.
The most worrying sign is the group's like-for-like sales performance, where sales in the six months to November were just 1.7 per cent ahead of the same period last year. With food price inflation running at just over 2 per cent, that represents a fall in real terms.
The problem is that though management tries to focus attention on the core Somerfield format, where sales were 4.3 per cent ahead, it is still being dragged back by the under-performing tail of old Gateway stores and the Food Giant discount format. Sales are falling off a cliff in both.
Dig beneath the surface and other problems emerge. Though the conversion of Gateway shops to the Somerfield format yields double-digit sales gains in the short term, they soon evaporate. Mr Simons admitted yesterday that in some of the original Somerfield conversions sales have started to go into reverse. For a company that is hoping to drive profits through higher sales that looks extremely worrying.
To be fair to Somerfield, it is doing some of the right things. It is moving towards higher-margin fresh foods and its Europartners buying consortium is helping keep costs lower.
Mr Simons is talking about home shopping trials and financial services but the fact is that rivals such as Tesco and Sainsbury are further ahead, have stronger brands and more funds. Somerfield is always going to be running to catch up.
Shareholders who were bold enough to apply for Somerfield shares last summer eventually got a very good deal at 145p. Though the shares dipped 5.5p to 168.5p yesterday, investors are still looking at a near 10 per cent gain. But that was the easy part. Further advances will be harder to achieve.
Brokers were shading down their full-year profit forecasts yesterday to pounds 100m this year and pounds 105m next. This puts them on a forward rating of just seven.
Braver souls may want to follow fund managers like PDFM and hold on for the long, long term. But it will be a stressful experience. Others should sell.
- 1 Man on naked bike ride gets ejected after becoming aroused
- 3 Ann Summers survey reveals the UK's favourite sex position
- 4 Jaden Smith wears gender fluid dress to high school prom with Hunger Games actress
- 5 How much sex should I be having?
Ed Miliband returns to the backbenches but it's all a bit awkward as he tries to avoid eye-contact with fellow Labour MPs
Man on naked bike ride gets ejected after becoming aroused
Charles Kennedy 1959-2015: A gifted, compassionate politician whose career was cut short by the 'demon drink' - latest news
Ayyan Ali: Pakistan's top model now appears in the courtroom rather than on the catwalk
Isis tortures 14-year-old Syrian boy and films it in graphic video for 'propaganda purposes'
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Why this year's general election was the most unfair in Britain's history
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...