Kantar vs. Iceland
All,
Following the Kantar release this morning indicating that supermarket sales were down -0.5% overall, we believe that our Iceland model works well for the forthcoming Q1 numbers, but have reduced our LfL estimate for Q2 from -0.3% to -2%. Thus we are dropping our EBITDA estimates for Q2 from £24m (down from E28m in Q218) to £23m and thus have leverage rising by 0.1x to 5.2x in September.
As a result of the reduced growth for Q2 we are, however, not changing our 2% position in the 25s.
Tomas is your analyst.
Q1:
- According to Kantar, Iceland sales fell by 1.5% in the 12 weeks through 14th of July. with its market share staying flat at 2.1%. This is a significant deterioration from its last estimate of +0.6% though the 16th of June. So the end of June / beginning of July 4-week interval must have been a "relative disaster". But it may be explained by the excellent weather in those weeks and England's romance with winning the World Cup. Last year’s respective Kantar estimates showed a 2% improvement as a result of the same 4-week interval and so what we are seeing now is very much the reversal of that development - thus giving us no incremental reason for concern.
- Because Iceland’s quarter will be reported as of the 21st of June, we don’t think that this "relative disaster" will show up in the reported numbers. By comparison, our model estimates total sales growth of +1% for Q119 on the basis of -3% LfL sales. Numbers to be reported on the 31st with call at 1pm.
Q2:
- However, if Kantar were right with their estimate that Iceland’s total sales have given back the entire gain made in that 4-week period year, we would be disappointed. The main reason we believe our numbers are more positive than Kantar’s are the over 50 new stores that Iceland have opened in the last year. So aside from the volume growth associated with those stores, which we are not sure Kantar have taken into account in the first place (see constant underestimation of total sales groth vs Iceland’s numbers), we believe that the contribution of those new stores will still be growing throughout the coming quarters and thus support overall sales levels.
- Tomas also believes that the current hot weather should boost sales in the BBQ and frozen departments, strong areas for Iceland. According to Kantar, Iceland’s market share has stayed at 2.1%
- Nonetheless, we are reducing our LfL assumptions for Q2 to -2%, with the above mentioned effects on the overall credit outlook.
More from Kantar:
- Against a strong comparable 12 week period last year, not surprisingly UK supermarket numbers are down this morning - down 0.5% in the 12 weeks to 14th July 2019.
- This marks the first overall decline in the supermarket sector since June 2016. However, on the back of record sales during last year’s hot summer, the tough period was not unexpected. As in politics, nothing is certain in retail, but it is anticipated that the market will return to growth once the comparative highs of the 2018 summer pass.
- Last year people shopped more frequently and closer to home as they topped up the cupboards while enjoying the sunshine and the men’s football World Cup. This year households are making one fewer trip, which may not sound like much but is enough to tip the market into decline. In addition, like-for-like grocery inflation fell marginally to 0.9%, which is good news for consumers but has made it harder for retailers to achieve value growth.”
Wolfgang