Tesco Full-Year Results: What The Analysts Said
Tesco has announced its first full year of positive sales since 2009/10, with those at its home UK operations rising by 0.9%. Here's how the analysts saw it.
Ray Gaul, Kantar Retail
"Tesco can be proud to say that 80% of all shoppers claim they found staff helpful when visiting Tesco’s stores. Tesco can also successfully put the accounting scandals of the past behind them, having settled legal affairs in the past 30 days. Now, Tesco will begin to fight all of its battles on the front foot. Signs of this attacking spirit can be seen in recent months. During the 2016/17 period, the company invested in range simplification [and] improved staffing programmes and higher-quality own-brands. Kantar Worldpanel data shows that 64% of Tesco shoppers are now purchasing from the newly introduced line of Tesco Farm Brands. However, the crowning achievement of the year has been a return to customer satisfaction by doing more with less – simplified but improved ranges have paid off in full."
David Beadle, Moody’s
“With further progress in like-for-like sales and an ongoing recovery in underlying operating profitability in the UK, Tesco’s preliminary results are in line with our expectations. The operational momentum and a further reduction in reported net debt support the stable outlook on the company’s Ba1 rating. However, as the company’s credit metrics are still weak, for now, Tesco remains weakly positioned in the rating category.”
Philip Benton, Euromonitor International
“The cooling of the UK supermarket price wars has enabled Tesco to increase their value sales, as well as volume sales, but this will likely be a result of inflation costs having been passed on to the consumer. The ONS has said that food prices rose year on year in February 2017, which is the first price rise seen in three years. The accounting scandal of 2014 continues to have a negative impact on profits, and the ongoing battle to acquire wholesaler Booker is the main concern for Tesco’s shareholders. However, there is much to be optimistic about, and a restructure in the international leadership team, with new chief executives for its Asian and Central European businesses, imply that Tesco has one eye on ramping up its overseas sales to hedge the risk of Brexit on its core UK operations.”
David Alexander, GlobalData
"Ensuring shopper enthusiasm for the reinvigorated Tesco does not dissipate amid creeping inflation will be crucial to Tesco’s fortunes over the coming year, and in this respect, its proposed takeover of Booker makes a lot of sense. Though it remains to be seen how much of the proposed merger will survive the scrutiny of the competition authorities, there are a number of potential benefits, both in terms of the cost savings it is likely to bring, but also the opportunity to gain a greater foothold in the fast-growing out-of-home food market. The Booker deal is emblematic of Tesco’s determination to capitalise on its recent momentum. Though it is still blighted by the repercussions of the mistakes made during more troubled times, there is plenty to suggest that Tesco has been strengthened by the learning curve of past missteps."
Danielle Pinnington, Shoppercentric
“Cutting the promotional clutter and getting to grips with delivering what shoppers want certainly seems to be working for Tesco. The trick now is to keep on top of changing shopper needs, as more switch to little-and-often shopping habits and they prepare for the impact of Brexit.”
Bruno Monteyne, Bernstein Research
"[Tesco has] restated confidence in guidance of 3.5%-4.0% margin by 2019/20. That means they need ~150bps of margin improvement over the next two years, spread over the next three margin updates. That means they're confident in delivering, on average, 50bps of margin improvement three periods in a row (the same step-up as this year's 50bps year on year). There is some backloading of cost savings, but this sets the pace of future step-ups in improvements."
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.