The decline in Asda’s like-for-like sales in the run up to Christmas was caused by a fall in George clothing sales, whilst its upmarket food range outperformed the market.
In all fairness, this wasn’t a bad result in a difficult market, but now Walmart is eyeing up an exit strategy.
Leeds-based Asda said underlying sales fell 1.3 per cent in the three months to December 31 amid challenging market conditions. Its clothing arm was hit by a reluctance among shoppers to spend during the political turmoil that hit the retail sector ahead of the December General Election.
Despite this, the core food business proved more stable and Asda reported progress.
It has seen strong growth in its premium Extra Special range as shoppers treated themselves at home rather than venturing out to restaurants.
Extra Special sales grew ahead of the market and were up 5 per cent year on year.
Asda won 92 Quality Food and Drink Awards in the quarter, including the prestigious retailer of the year and retained its value credentials, winning the Grocer 33 best value Christmas basket for the seventh year in a row.
Asda’s home shopping operation saw double-digit growth in the fourth quarter – up 10.3 per cent year on year, a key area of growth for the company.
Fraser McKevitt, head of retail and consumer insight at Kantar, said Asda is managing to maintain the number of people coming through the door though, which is absolutely key.
Asda said that customers’ mind sets during the last quarter of 2019 were cautious and whilst customers were enthusiastic for Christmas, they were more mindful in their spending – with many choosing to pare back gift lists and focus presents on kids rather than adults.
Analyst Thomas Brereton at GlobalData said Asda needs a faster overhaul of its non-food offer. He said the respectable food performance will be bolstered by the new partnership with Greggs and the introduction of the new one-hour Express Click & Collect.
However, Mr Brereton said the decline in non-food sales – brought on by the impressive performance of firms such as Amazon – is something that Asda has been slow to adapt to in comparison with its main rivals. He said Asda must consider reducing space dedicated to non-food.
Analyst Clive Black at Shore Capital said Walmart’s love affair with Asda appears to be over.
”Persona non grata comes to mind, which we sense could be quite dispiriting to the team in Leeds and is a little sad to see,” he said.
“We also see an Asda that is probably up for sale, with its owners likely to be preferring a trade or financial buyer to an IPO, albeit the latter perhaps remains the most likely outcome.”
He said recent sales and profit momentum do not make a premium listing an easy outcome for Walmart. Indeed, he said any IPO over the next year or two will probably require an ongoing equity involvement by the US group before inevitable ambitions to sell down.
“All such stuff maybe ahead of us but in Roger Burnley we see a good operator guiding Asda rationally and quite effectively with the cards dealt to him,” he concluded.
Mr Black is right that the most likely outcome is an IPO, despite Asda’s weak festive sales, as few believe the competition watchdog would allow a takeover by a rival following Sainsbury’s failed attempt to buy Asda.
It would be good to see Asda back in the FTSE 100 and master of its own future once again.