Argos lifts Sainsbury’s and SSP to cut UK workforce in half

“For the same reason that markets didn’t take much notice of backward-looking apocalyptic economic data in the spring, more positive data seen recently is also being put to one side as investors instead look ahead to a potential coronavirus second wave and tensions over Hong Kong,” says AJ Bell Investment Director Russ Mould.

“The FTSE 100 dipped early on, down a handful of points to 6,164.54, with warnings the US could soon be facing 100,000 cases of the virus a day leading to considerable nervousness.

“Notably traditional safe haven gold continues to shine with futures prices late yesterday having reached their highest levels since 2011 just above the $1,800 per ounce level.”

Sainsbury's

“Sainsbury’s has pulled a rabbit out of the hat with a stellar showing from Argos. Expectations were already high for strong grocery sales, given stronger demand for food to eat at home during lockdown. However, it is fair to say that the market wasn’t expecting such a positive showing from Argos.

“One might assume everyone during lockdown turned to Amazon for toys, sports equipment, fridge freezers, laptops, TVs and more, yet it is clear from the latest updates from AO, Dixons and now Sainsbury’s/Argos that there is more than one player in town for internet orders.

“The strong performance in all parts of the business apart from clothing and general merchandise inside its supermarkets will give Sainsbury’s a new lease of life. It’s also fortunate timing as it allows new chief executive Simon Roberts to deliver positive news with his debut appearance updating the market.

“It’s not all plain sailing as Sainsbury’s will have to stomach higher costs associated with Covid-19 and there is a high chance that consumer spending levels may drop in the coming months, particularly if unemployment rates go up.

“Roberts is right to set expectations low for the coming months, saying that he does not expect a continuation of the current strong sales growth. It is better to be realistic about prospects rather than get over-excited as the new person in the job and then fail to deliver.”

SSP Group

“It turns out running food and drink concessions in train stations and airports is not a great business to be in during a global pandemic.

“Despite tapping shareholders for funds and leaning on state support, SSP Group, owner of brands like Upper Crust and Caffe Ritazza, is being forced to take some tough decisions.

“Cutting its UK workforce in half shows the scale of the challenge it is facing and indicates the limitations of the furlough scheme.

“Decisions like these are not an easy fix. In addition to the heavy weight of responsibility felt for putting people out of a job, there are significant upfront costs to mass redundancy programmes.

“If or when any eventual recovery in demand comes through, SSP will face the task of hiring and training new staff, even if it has tried to build some flexibility into the restructuring process.

“Any business would struggle to contend with a 95% drop in sales such as the business saw in April and May, while a recovery to a 90% drop in June hardly seems cause for celebration.

“The problem for SSP management, staff and investors is that it is hard to know exactly when the captive audience of travellers from which the company generated such bumper profits will return.

“Until they do the company will effectively be in survival mode and watching nervously the £25 million to £30 million of cash it has previously signalled it will burn through every month at these low sales levels.”

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