UK grocers in a "good place" as retail sales pick up, says Shore Capital

Shore Capital says UK retailers have a reason to be "quite cheerful" after August's strong retail sales data on Friday, with listed supermarket companies likely to benefit from improving macro conditions.

According to estimates from the Office for National Statistics, retail sales volumes rose 1% in August, following an upwardly-revised 0.7% increase in July. Volumes were at their highest levels since July 2022. Analysts, who expected sales growth to have slowed, had forecast a 0.4% increase.

Shore Capital analyst Clive Black said the data provides a "sound base" for the run-up to the key Christmas trading period.

"All in all, there is an encouraging trend line from a volume perspective on the ONS series that records weak winter 2024 activity and ongoing gradual volume improvement through the year, albeit volumes have not returned to the Q2 2022 levels yet," Black said. "All in all, as summer ends, we find this a quite sanguine ONS update for UK retail with the kids back at school and most folks back to work after the summer holidays."

Within this context, Black said grocery stores are "in a good place" and could see a "period of deserved rating expansion".

"We again call out the decent market conditions of the UK grocers where the value of the industry’s sales exceeds new space, the market is competitive but rational, the listed players have strong balance sheets that is helping to capture the share gifts from the weak."

Tesco was up 0.2% by Friday morning, outperforming the wider FTSE 100 which dropped 0.7%, while Sainsbury's and Marks & Spencer were flat.