Asda has reported a decline in sales during its latest quarter with management blaming the weaker performance on Brexit uncertainty and its impact on consumer spending.
Over the 13 weeks to 30 September, the chain’s like-for-like sales fell 0.5%, having risen by the same amount the previous quarter. However, it claimed that comparable sales had improved sequentially if the previous period’s figure was adjusted for Easter.
The group also said that its online grocery business was continuing to perform well with sales growing at double the rate of the overall market, boosted by new developments such as its ‘shop by recipe’ feature.
Asda revealed that its gross profit rate, or margin, and its operating income had both declined due to markdowns in clothing and higher operating expenses.
Doug McMillon, CEO of Asda’s parent Walmart, highlighted that concerns over Brexit had continued to “negatively affect customer spending patterns” in the UK.
The group’s CFO Brett Biggs added: “We’re continuing to manage through political and/or economic challenges that are affecting growth in several of our International markets, including the UK.” However, he stressed that operating fundamentals and service levels at Asda were improving. As well as investing in enhancing in its product ranges, the group has been revamping its stores with 15 completed in the quarter.
Meanwhile, Asda’s CEO Roger Burnley commented: “This quarter has afforded consumers little respite from political or economic uncertainty and this has shown in their spending. However, we have remained focussed on doing the right things for our customers. We continue to work hard to keep prices low for our customers as well as driving quality and improving our shopping experience.”
Amid the Brexit uncertainty and distraction of a December election, many retailers are looking nervously at Christmas. However, Burnley said he was confident Asda was “ready and raring to go”.
Following the release of the results statement, Thomas Brereton, Retail Analyst at GlobalData, said: “With the merger with Sainsbury’s falling through and Asda advancing with plans to demerge from Walmart, Asda now needs to fully prepare itself as a standalone business. The positives include its effective physical network and its strong online grocery business. However, without a convenience network, it is missing out on a faster-growing channel of the market; to rectify this it should consider the outright acquisition of an established network such as McColl’s (viable, given its market cap of c.£50m).”
He added: “A potential stumbling block for Asda lies within its brand reputation. While Tesco and Sainsbury’s have both started to heavily leverage their established British heritage (both are using birthdays this year as an excuse to lower prices) to combat the discounters, Asda has instead become embroiled in an ugly and public contract debacle, which – for shoppers that feel they have little to differentiate between Asda and another supermarket – may result in lost sales over the vital Christmas period.”
NAM Implications:
- Asda face political and economic uncertainty issues as with other mults.
- However, the new contract has presented them with unintended consequences that are unique…
- …and the resulting damage to the brand will need to be sorted before a demerge can be optimised.
- In other words, heads down and a focus on financial performance…
- …presents opportunities for NAMs that can calculate cost and demonstrate value to an increasingly receptive customer…
- (see NamCalc)
- Incidentally, Asda might benefit from using our Buying Mix Analysis tool to reassess their relative competitive appeal to consumers and suppliers.
