Daily Brief: Tesco’s Calling Time On Pandemic Costs And Getting Back To What Grocery Chains Do Best

Daily Brief: Tesco’s Calling Time On Pandemic Costs And Getting Back To What Grocery Chains Do Best

over 2 years ago3 mins

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Tesco reported strong half-year earnings on Wednesday morning, as the UK’s biggest grocery chain finally put down the cleaning supplies and got back to doing what it does best.

What does this mean?

Grocery chains outdid themselves last year, primarily because their stores were some of the few that stayed open when the world flipped upside down. But things are only getting better for Tesco: the company’s revenue for the first half of this year came in 1% higher than the same period in 2020. That might not sound like much, but the first six months of last year – which saw a boom in sales as shoppers stockpiled toilet paper – was always going to be tough to beat. Tesco reckons it can keep this momentum going too: it upped its profit outlook for the rest of the year, and investors sent its stock up 6%.

Tesco stock
Source: Google Finance

Why should I care?

The bigger picture: Tesco’s saving on soap suds.

Rising costs are nothing new for companies these days, but Tesco is especially at risk: Britain’s grocery market is so competitive that passing those costs on to customers in the form of higher prices might encourage them to switch to a cheaper rival. Still, at least the expenses that came with the pandemic – not least all those cleaning bills – are tapering off, and Tesco just said it thinks it can cut another $1.3 billion in costs over the next three years.

For markets: PE firms want to take grocers to the checkout.

Private equity (PE) firms have agreed to buy two of Tesco’s biggest rivals – Asda and Morrisons – this year, and Tesco’s worried it might be next on the menu. That might be why it just announced it’ll start buying $680 million worth of its own stock this month. That’ll reduce the number of shares available and push their price up, which should put off any PE firms in the market for a bargain.

Keep reading for our next story...

European Natural Gas Prices Surged Yet Again

Gas prices image

European natural gas prices surged again on Wednesday, as the region’s government shakes up its strategy for keeping your radiators running this winter.

What does this mean?

Let’s start with the silver lining: demand for energy is so high right now because of Europe’s strong bounceback from last year’s events. But that recovery doesn’t mean much if it’s not allowed to flourish, and the tough competition for a stagnant supply of energy could bring it to a premature end. Countries, after all, are trying to outbid each other to fill their gas storage sites before a nippy winter arrives, which has driven natural gas prices up 60% in the last two days. That rally probably has further to run too: China is ordering state-owned firms to hoard whatever supplies they can get, while Europe is still holding historically low levels of natural gas for this time of year.

Europe energy dependency

Why should I care?

The bigger picture: The EU spends money to make money.

The European Union isn’t taking this lying down: it said on Wednesday that it’ll be rolling out tax cuts and support packages to help ease the damage to households and businesses. It’s in its interests to do exactly that, given that some of the region’s more energy-intensive companies have already been forced to roll back operations. German ammonia producer SKW Piesteritz, for example, announced on Tuesday that it’ll be cutting production by 20%. That matters: ammonia’s an essential ingredient in fertilizer, and higher crop-growing costs are bound to make their mark on your weekly shop.

For markets: Bail on bonds.

Rising energy costs tend to lead to higher inflation, so investors are getting pretty antsy right about now: bonds tend to perform poorly when prices are on the rise, since the fixed returns they offer become worth less. That explains why investors sold off 10-year UK government bonds on Wednesday, sending yields – which rise when prices fall – to a two-year high.

Yield gas prices
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