Convenience store group McColl’s (LSE: MCLS) reported its interim results for the six months ended 31 May 2015 today. The company revealed that like-for-like sales across the group declined by 1.9% during the period.
Total revenue expanded 3.4% after including the contribution of new store sales. 25 news stores have been acquired during the period. Sales in newsagents and standard convenience stores slumped 4.5% and operating profit before exceptional items ticked lower by 6% to £9.6m.Â
Nevertheless, despite these lacklustre operating performance figures, McColl’s adjusted earnings per share for the period increased 45% to 6.1p, and management hiked the group’s interim dividend payment by 100% to 3.4p.Â
Signs of a turnaroundÂ
McColl’s results show that the company is starting to struggle in the UK’s increasingly competitive retail market.
However, according to figures from Kantar Worldpanel, which estimates grocers’ sales performance by monitoring till rolls, Tesco’s (LSE: TSCO) sales declines are starting to moderate.Â
During the twelve weeks to 19 July, according to Kantar’s figures Tesco’s sales fell 0.6% compared to the year-ago period. The group’s market share fell to 28.5% during the period, from 28.9% as reported a year ago.Â
Looking at the trend over the past year it’s clear that shoppers are slowing their exodus from Tesco’s stores. For example, during the first quarter of last year, Tesco’s UK sales fell by 4%, which marked a low point in the company’s performance. By the fourth quarter of 2014 declines had slowed to 1.7% and during the first quarter of 2015, Tesco’s like-for-like sales fell by 1.3%, defying the expectations of analysts, who predicted a slump of between 1.6% and 3%. Like-for-like volumes rose 1.4% during the 13 weeks ended 30 May 2015.Â
And although Kantar’s figures are only supposed to be an indication of sales trends, they do hint at the fact that Tesco’s sales are starting to stabilise.Â
Income vs. growthÂ
When it comes down to it, Tesco looks to be a better play on the retail sector than McColl’s. It’s really a question of size.Â
Tesco’s size gives it an edge over most of its peers. What’s more, the group’s international operations, which are currently up for sale, will provide a much-needed cash infusion to help the group return to growth.Â
That said, McColl’s does have its strengths. The group’s shares currently support a dividend yield of 6.5% and the payout is covered 1.8 times by earnings per share. The shares trade at a 2015 P/E of 9.8, making McColl’s one of the cheapest stocks in the retail sector. Earnings growth of 6% is pencilled in for 2016 and a dividend yield of 6.7% is predicted. However, as noted above while McColl’s earnings may be increasing, the company’s like-for-like sales figures are deteriorating, which could be a problem.Â
You see, management is looking to have 1,000 McColl’s stores open by the end of 2016, up 19% from the end of May. Although, with sales falling it’s questionable if the group should be expanding. After all, Tesco’s downfall was driven by the company’s desire to chase floor space over customer needs and wants. McColl’s could be making the same mistake.