Tesco's disappointing full-year results drew a mixed response from some of the retail industry's leading analysts, as outlined here.
George Scott, Conlumino
"This is a gloomy headline from Tesco, with its bottom-line profits at the pessimistic end of market expectations, underlining the scale of the task facing chief executive Dave Lewis. Its drop in trading profits reflects its broad competitiveness, which has been consistently weak in recent years, while its pre-tax loss is indicative of deeper structural challenges.
"However, this level of pain is something the retailer needed to go through to clear the decks, and behind the headlines, Lewis should be commended for his bullish approach in seeking a turnaround. […] The key challenge for Tesco now is how it manages its cash to drive future investments in competitiveness."
Darren Shirley, Shore Capital
"To say that Tesco had a nightmare year in FY2015 would be an understatement, an out-turn that would simply have been unfathomable in days gone by. The whys and wherefores of how Tesco reached this somewhat unedifying position have been well documented, to our minds, and so perhaps the key takeaway for investors from CEO Dave Lewis' first set of preliminary results should be what of the future."
David Gray, Planet Retail
“The news of the biggest loss in decades at Britain’s biggest retailer comes as a result of a write-down on the value of its property portfolio. The simple fact is the value of out-of-town sites has fallen, as openings have been mothballed. Although it’s been a disastrous year, Tesco is, in effect, cleaning out the closet, enabling management to start with a clean slate in 2015/16, upon which to rebuild the business.
“But the picture isn’t all negative. Rarely have a new management team had such a rapid impact on UK trading, which reported its smallest like-for-like decline in some time in Q4. Range, availability, service and price perception are all understood to have improved under Dave Lewis and Alan Stewart. While concern remains over the state of the balance sheet, the more important metric of the actual health of the business, trading at the core UK unit, is showing tentative signs of recovery."
Bruno Monteyne, Richard J Clarke, Bernstein Research
"The press headlines will be dominated by the £5.7 billion loss. We instead focus on the pension deficit, which has not expanded as much as some had feared, the lack of any hidden surprises, and the solid trading performance coming through in the UK (-1 per cent, like for like). Forward-looking, things are materially better than expected, i.e. the pension deficit being less than expected and a funding plan agreed, UK profitability holding up better than expected.
"This bodes well for the year ahead, albeit that it won't immediately be translated into margin expansion. […] Dave Lewis has made the right initial steps on the long journey to potentially stabilising the company, and we believe Tesco has a fighting chance of regaining some of its former glories: a fantastic operator chasing cash returns to investors rather than global domination."
James Anstead, Nicolas Champ and Julie Zhuang, Barclays European Retail Equity Research
"Two messages are clear from Tesco's FY results statement. Firstly, volume growth is the priority – Tesco highlights the fact that in 4Q it generated UK LFL volume growth for the first time in over four years. Secondly, any additional savings or outperformance will be reinvested to improve the customer offer and, in turn, boost volumes.
"Entering such a 'virtuous circle' is an aim of many retailers, but the cost is rarely cheap – the additional £150m of savings identified by Tesco seem likely to follow the £250m tranche from January into improving the proposition, not rebuilding short-term margins. […] Tesco's focus on volume recovery is clear – if achieved, this could transform the perception of its growth profile. However, it also has cautionary implications for its own margins and (potentially) those of the industry."
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