To say that Tesco (LSE: TSCO) has had a weekend to forget would be something of an understatement.
The Cheshunt chain was forced to endure a Twitter storm as its current account holders had to endure money being fraudulently withdrawn from their accounts. Tesco has been forced to suspend online payments on Monday as it tackles the problem, with Tesco Bank chief executive Benny Higgins telling the BBC that 20,000 customers had cash taken from their accounts.
Tesco is required to immediately reimburse customers under FCA guidance, as well as any charges customers may have incurred. But this is not the company’s only problem — after all, the last thing Tesco needs is another PR disaster, following the horsemeat scandal and accusations of supplier bullying in recent years.
Aside from the woes at Tesco’s banking operations, reports emerged over the weekend that Walkers and Birds Eye are looking to hike their prices, in a bid to counter sterling weakness, the latter aiming to increase what it charges UK supermarkets by 12% on some of its products.
Unilever got the ball rolling last month with price rises of its own, resulting in a terse stand-off between itself and Tesco as the retailer stopped selling the likes of Marmite and Persil on its website. And moves from scores more suppliers can be expected in the months ahead as Brexit pains likely result in additional pressure on the pound.
So Tesco and its peers have the unenviable task of choosing between passing these costs onto its customers — and thus driving its more cost-conscious shoppers further into the arms of discounters Aldi and Lidl — or swallowing these hikes and putting their already battered margins under even more pressure.
Sure, Tesco’s top line may still be heading in the right direction, with a 0.9% like-for-like rise during June-August up from growth of 0.3% in the prior quarter. But there is still plenty of mud in the water that could stymie a sharp earnings snapback at the firm in the years ahead, in my opinion.
Deal in danger
My bearish view on Royal Dutch Shell (LSE: RDSB) hasn’t improved over the weekend, either, following news of fresh bickering between OPEC members.
On Monday, OPEC’s Mohammed Barkindo was forced to deny that the wheels are not falling off its much-lauded supply freeze agreement, with the group’s secretary general announcing that all 14 member states remain committed to the deal.
But rumours that Saudi Arabia vowed late last week to raise its own production, should members fail to rubber-stamp the deal this month, negates any suggestion of cross-cartel unity. Some members like Iran have been exempted from cutting, or even holding, their own production, causing other group members to publicly call for similar exemptions. The political and economic ramifications of getting an agreement over the line are clearly colossal.
An OPEC deal is desperately needed to get Shell bouncing back into profitability, particularly as the US rig count continues to rise and Russia also keeps the pumps switched up around full capacity.
Given that market oversupply is in danger of persisting well into the future, I reckon crude majors like Shell are a risk too far for canny investors.