By Samuel Indyk
Investing.com – The UK consumer took centre stage on Friday after the latest retail sales data and earnings from Tesco and car showroom Inchcape . The reports are painting a clear picture of the UK consumer as lockdown measures are eased and some normality returns.
Retail sales
The Office for National Statistics (ONS) said UK retail sales fell 1.4% in May, a minor correction after April’s stellar figures when non-essential retail reopened for the first time this year.
Unsurprisingly, the ONS noted that part of the drop off in May was driven by a fall in sales by food retailers as restaurants and pubs were permitted to open their doors to customers.
“Food stores sales suffered as feedback suggested the reopening of hospitality meant consumers took advantage of eating out instead,” ONS Director for Economic Statistics Darren Morgan said.
One of the bright spots from the report was again home improvement and gardening equipment. With increasingly large number allowed to meet outside in gardens and an improvement seen in the weather, outdoor goods continue to perform well.
“Household goods stores and garden centres fared well as people spent money on improving their gardens in anticipation of the summer and the lifting of restrictions on outdoor gatherings,” Morgan added.
UBS Chief Economist Paul Donovan summed up the data in a succinct manner.
"UK retail sales fell in May, reflecting the shift in spending towards having fun," Donovan said. "Having fun is generally excluded from the retail sales data (no restaurant spending)."
Tesco trading update
The UK’s largest retailer by revenue announced a 1% rise in like-for-like sales in the first quarter to £13.4bln. The company also kept its profit guidance unchanged for the year despite the uncertainties related to the pandemic.
“Tesco's (LON:TSCO) first quarter numbers look sluggish, but that’s because they’re lapping the unprecedented demand triggered by the pandemic this time last year,” Hargreaves Lansdown (LON:HRGV) equity analyst Sophie Lund-Yates said in an emailed note.
To remind you, back in the three months to May last year, people were stockpiling food products during the onset of the pandemic due to the huge levels of uncertainty that gripped the nation, so a 1% rise in sales may not be as bad as it looks at first glance.
Inchcape profit boost, semi-conductor shortage
Car dealership Inchcape (LON:INCH) is a company that has performed well in recent months and continues to benefit from factors related to the pandemic. The company said performance to date has exceeded expectations and expects to deliver profit before tax “significantly ahead” of market consensus.
Demand has picked up as more people appear willing to shun public transport in favour of their own vehicle, given the associated risks from mixing with others on buses and trains.
However, the ongoing global semi-conductor shortage has a potential to impact the car market as production has slowed, creating a supply shortage.
Inchcape have noted the chip shortages but said that the lack of supply has had a limited impact on the group to date. Nevertheless, it will be something to look out for in the coming months, according to AJ Bell Investment Director Russ Mould.
“Chip shortages could move from being a fuel injection to a speed bump if they mean Inchcape itself is struggling to source the cars people want and when they want them,” Mould said in an email.