Tesco Q1 Results: What The Analysts Said

By Steve Wynne-Jones
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Tesco Q1 Results: What The Analysts Said

Tesco posted a group sales increase of 1.0% in the first quarter of the year; its sixth consecutive period of growth. UK like-for-like sales were up 2.3%. Here's how the analysts saw it.

Ray Gaul, Kantar Retail

"Tesco’s core focus over the trading period has been in two areas. Firstly, Tesco are working tirelessly to create what CEO Dave Lewis calls a ‘Differentiated Brand’. In practical terms, this means redesigning and giving more space in stores to hero products. These include recent additions such as an award-winning Chinese Wine, Tricky Fruit, Craft Beer, and the Freshpet range among other innovations.

"In emotional terms, this means creating shopper solutions through partnerships with great service providers such as Spoon Guru, Currys PC World, and creating partnerships to enable iconic retailers to trade in Tesco managed properties. Secondly, they are restructuring their management teams to enable faster and more localised decision-making."

John Ibbotson, Retail Vision

“Tesco has delivered a corker in its core UK market. Food, and fresh food in particular, is firing on all cylinders and that’s a huge shot across the bows for its competitors, in particular Morrisons. With inflation rising sharply, Tesco has used its immense buying power to keep prices lower for its customers. Against this inflationary backdrop, the numbers are all the more remarkable.

“But the toxic combination of rising inflation and low wage growth remains a major threat. As inflation continues to erode people’s spending power, more and more of Tesco’s customers could be driven back to the discounters, Aldi and Lidl. What’s particularly encouraging is that Dave Lewis is acutely aware of this and knows that nothing can be taken for granted. He is sticking religiously to the basics of grocery, which is delivering a robust food proposition, keeping prices low and putting a massive focus on customer service."


David Alexander, GlobalData

"With much of the UK’s retail sector enduring a disappointing start to the year, the contrast with the country’s biggest retailer could not be starker. Once again, Tesco is toasting a quarter in which growth exceeded expectations under Dave Lewis, with the core UK business the star. Of course, the two things are not entirely unrelated, with inflation in core essentials such as grocery being blamed for the current hesitancy among UK shoppers to reach into their wallets.

"The balance of power would seem to lie in the hands of the grocers, given that shoppers can easily put off buying a new sofa, but can hardly stop buying groceries. In days gone by, this may well have been the case, but these days, things are different. Tesco and its grocery peers, can no longer simply pass on higher sourcing costs to shoppers and expect them to come flooding in for more each week. The rise of the German discounters has made sure of that, hence the emphasis in today’s update on “protecting customers from inflationary pressures.”

Clive Black, Shore Capital

"Tesco, Britain’s largest grocer, has delivered a broadly encouraging update that may improve the overall investor mood a little. Indeed, we believe Tesco’s update underscores our more sanguine approach to the UK grocery superstore groups, where we have an OVERWEIGHT stance compared to the more stock selective approach that is necessary with respect to general retailers, many of which are facing wider market challenges including ongoing material channel shift.

"Following this update, we are upgrading our Tesco forecast for FY2018 by 6.5%, EPS 9.9p, reflecting a catch up post the recent preliminary results. We retain our neutral HOLD position on Tesco’s shares in the near-term, pointing out the still high valuation metrics (18.2x FY2018 PER), considerable total leverage and low income support. In due course though, Tesco could become a whole lot more interesting, particularly if any Booker acquisition materially beats expectations on synergy benefits."


Catherine Shuttleworth, Savvy

"As shoppers start to steer through choppy waters of increased inflation and wage stagnation, it will be critical that food retailers provide terrific value every day to their shoppers. That’s not just about cheap prices, it’s about a really relevant range of products for the shopper with great availability and a multichannel platform that can be accessed as and when the shopper decides. Tesco seems to be hitting the spot. And as they continue with their mantra of “we don’t welcome inflation” suppliers and Tesco will have to work in partnership to find new and creative ways of ensuring that value is delivered. Ahead of the CMA review on the Booker deal, Tesco look and feel like they are in great shape – but aren’t complacent about the challenges ahead.”

Bruno Monteyne, Bernstein Research

"[Tesco reported] UK Q1 LfL of +2.3%, 40bps ahead of consensus of +1.9% and an increase of 160bps compared to Q4 2016. Our estimate of +2.2% was the top of the consensus estimate and Tesco beat this by 10bps. Tesco don't give a total LfL Total volume growth number but say that it 'remains positive', likely in line with the small positive in Q4, as Tesco continues to reduce loss making short-term marketing activities in general merchandise."

© 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.

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