Comment: Booker sees strength in food
Booker sees tobacco weigh on result
UK wholesaler Booker Group today (18 July) unveiled a resilient first-quarter sales performance. While lower tobacco sales weighed on the firm's revenues, non-tobacco, which primarily includes food and drink products, saw strong growth despite fears the poor weather and tough comparisons would dampen the result. Katy Askew reports.
In an announcement released ahead of its AGM this afternoon, Booker Group revealed total sales increased 1.7% during its first quarter. While this represents a considerable slowdown from revenue gains of 4.8% in the fourth quarter of its last financial year, the firm's total sales figure was adversely impacted by lower tobacco sales.
Tobacco sales dropped by 1.7% in the period as Booker lapped last year's duty hike, which resulted in extremely tough comparables. In the comparable period of last year Booker witnessed a 10.1% leap in this revenue stream.
Tobacco sales through independent convenience stores - Bookers' primary tobacco customer - have come under pressure in recent years.
In the UK, while value sales of tobacco are increasing - largely due to higher duties - volume sales are in decline as health messages and government initiatives that have raised the price of tobacco products dampen demand and consumers increasingly switch to cheaper rolling tobacco products.
And, according to Shore Capital analyst Clive Black, the outlook for Booker's tobacco sales remains muted.
"Speaking to management, tobacco sales are expected to improve through Q2, though we believe the group is seeing little to no benefit from the tobacco display ban in larger stores, which was implemented on 6th April," Black writes in a note to investors.
The group can, however, take solace from the stronger performance of its non-tobacco products.
Non-tobacco sales were up 3.9% in the period, including a 3.8% like-for-like sales gain. This solid performance came despite the fact Booker was facing some tough year-on-year comparisons. In the first quarter of last year, sales were up 5.7%, boosted by good weather, Easter and the Royal Wedding.
It also seems Booker has been able to maintain its growth momentum, as sales gains were on a par to fourth quarter revenue growth of 4.1%.
"The non-tobacco performance sits above our FY13E forecasts for the base Booker business," Investec analyst Nicola Mallard says. However, she stops short of raising full-year forecasts given "the early stage of the year" and "what remains a challenging trading environment".
Booker has implemented a strategy to "broaden" its business in order to drive longer-term growth. The group is nearing completion of its programme of store refurbishment for its Extra format, it is investing in developing its online sales channel and is making in-roads into the catering sector.
Significantly, Booker revealed shareholders have approved its acquisition of the Makro chain from Germany's Metro Group. While the group has indicated it will not start the integration process until after it has received competition approval - expcted in October - it is in discussions with Makro management to formulate an integration plan.
Black says while he anticipates that the deal will dent profits in the current financial year, it is expcted to be earnings accretive thereafter.
"We retain our expectation of a GBP6m (US$9.4m) loss in 2012/13, rising to a GBP10m EBIT contribution in 2013/14. Our medium-term forecasts assume Makro UK generates an equivalent EBIT margin to core Booker thereafter, with a revenue growth rate of 6% per annum, against a forecast for core Booker of 4%," he says.
Booker therefore looks well-placed to deliver continued sales and earnings growth in the mid-term, despite challenging trading conditions and declining tobacco sales.
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