Tesco Half-Year Results – What The Analysts Said

By Steve Wynne-Jones
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Tesco Half-Year Results – What The Analysts Said

Tesco has reported a 3.0% increase in group sales (at constant exchange rates) in the first half of its financial year, with like-for-like sales up 1.2% at its core UK operation.

“We’ve had a strong six months; sales and profit have grown ahead of expectations, and we’ve outperformed the market," commented chief executive Ken Murphy.

Here's how leading retail analysts viewed its performance:

Richard Lim, Retail Economics

“These are hugely impressive results and the retailer has once again become the one to watch. Their transformation towards a more simplified business model is delivering improved efficiency and winning over customers with a renewed focus on price and loyalty.

"It appears the retailer has also been better positioned to deal with supply chain disruptions given their clout in the market and working extremely close with their suppliers to ensure continuity of supply. Nevertheless, with global commodity prices on the rise and pressure on other operating costs, it feels inevitable that some of this pressure will have to be passed on to consumers soon."


Ross Hindle, Third Bridge

“Now the Morrisons auction is complete, the supermarket industry is rife with rumours that Tesco or Sainsbury’s is next in line for a takeover bid. Industry insiders say Tesco is less attractive than Sainsbury’s because it lacks an extensive property portfolio, however it does offer exciting digital expansion plans, with its online infrastructure superior to its 'Big 4' competitors.

“With cost inflation pressures mushrooming, Tesco finds itself increasingly squeezed towards a price reaction. So far Tesco has largely absorbed rising costs, but as these pressures mount the supermarket can be expected to raise prices to defend margins. For now, Tesco is holding on to its Aldi price-match strategy; however, our experts question how sustainable this will be given the UK’s inflationary headwinds and point to a resurgence from the discounters.

“The current supply shortage plaguing the UK is expected to force retailers to cut back on ranges, especially as we move towards the festive period. One would like to see Tesco deploy its enormous buying power to push even harder on suppliers and navigate shortages.

Russ Mould, AJ Bell

“Tesco went above and beyond to serve the nation during the pandemic, and it is reaping the rewards now. The supermarket is doing remarkably well if you consider it is now lapping an incredibly busy period for the company. Its 2020 half year to the end of August included the time when large parts of the nation raced to stockpile goods and many people had no choice but to try online grocery orders for the first time. Tesco excelled at being able to give people the delivery slots they needed.


“A year on, sales are higher still as it has grown market share. Food price inflation may have contributed to higher sales, so too will have a recovery in activity for wholesale division Booker. The fact that operating profit is shooting ahead shows that Tesco is dealing with its own cost pressures very well.

“Christmas is going to be a testing time for the business, given how there are fears of product shortages during the festive period. Tesco is going to have to keep a close eye on stock availability and to make sure its stores don’t have gaping holes on the shelves. But the company should be feeling a lot more comfortable about dealing with such pressures given how it did so well during the pandemic.

“The decision by Tesco to buy back shares makes sense. Its share price has been left behind in the recovery from the global market crash in February and March 2020, despite the business having made considerable gains strategically. Management clearly take the view that the shares are too cheap at the current level, so buying some back is a good way to deploy spare cash.”

William Woods, Bernstein

"Tesco is firing all on cylinders. LFLs beat by +120bps, double consensus expectations at +2.3% YoY vs. consensus expectations of +1.1%, beating by +120bps. EBIT beat consensus expectations by +15% at 4.8%, up +40bps on H1-19. All segments and regions beat expectations.


"New strategic priorities and an updated capital allocation framework have been announced, including long-awaited buybacks. The tone is still cautious and considered but we should now expect £500m buybacks by October 2022 as part of an ongoing programme. This should be received positively but the size and timing of the buyback may mute excitement."

James Anstead, Barclays

"Tesco's 1H results were strong, guidance has been increased and the 2H outlook is measured. The bigger picture is that this set of results should help frame the Tesco investment case much more clearly. Tesco believes it can hold market share, cut costs materially (£1bn over three years), grow absolute profits, deliver strong FCF and return much of it to shareholders.

"Tesco is now guiding to FY21/22 Retail EBIT of £2.5-2.6bn. We raise our Retail EBIT forecast by 5.3% to £2.58bn. Together with higher Bank forecasts our FY21/22 EPS forecast rises by 11.7% to 20.3p. We make smaller increases to EBIT for the following years, but modelling buybacks helps increase our EPS forecasts for FY22/23 and FY23/24 by 6.2% and 6.7%, respectively."

Kunaal Shah, GlobalData

“Up against a tough comparative period that included a significant rise in demand for food & groceries due to panic buying at the start of the COVID-19 pandemic, Tesco has posted an impressive H1 FY2021/22 result. Group sales (excluding VAT and fuel) were up 2.6% on last year, reaching £27,331m, and this performance has resulted in the grocer increasing its profit guidance to between £2.5bn and £2.6bn – this would result in a potential operating profit increase of up to 44.4% for the full year. However, this could be heavily impacted by the HGV driver shortage and potential cost increases.


"Within its UK operations, like-for-like sales(l-f-ls) increased 1.2%, an impressive performance compared to competitor, Morrisons, which saw a 0.3% decline in l-f-ls for the 26 weeks ending 1 August 2021. Evidently, Tesco’s strategy to focus on value for money is bearing fruit, with the Aldi price match now expanded to around 650 products, up from c.500 last year.

"Coupled with its loyalty programme, subsequent Clubcard Prices scheme, and the aligning of its Everyday low prices for 1,600 products, Tesco remains competitive against the discounters: an essential quality as consumers face increased costs. With Morrisons having warned of price increases due to supply chain constraints in September, Tesco must ensure it can fulfil demand with strong stock availability to drive sales through the festive period."

© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Retail news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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