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Tesco Q3 And Christmas Statement – What The Analysts Said

Published on Jan 9 2020 2:20 PM in Retail tagged: Trending Posts / Tesco / Shore Capital / Bernstein / GlobalData / What The Analysts Said / Paywall / Asktraders

Tesco Q3 And Christmas Statement – What The Analysts Said

Tesco has posted a 0.9% decrease in like-for-like group sales in the 19-week period incorporating its third quarter and the Christmas trading period, however its core UK & Ireland business was up 0.4%.

Commenting on the business' performance, Tesco chief executive Dave Lewis said, "In a subdued UK market we performed well, delivering our fifth consecutive Christmas of growth."

Here's how leading retail analysts viewed its performance:

Thomas Brereton, GlobalData

"Tesco puts its success down to a focus on core groceries through price and promotions. While the headline UK sales performance includes a -0.4% impact from reduced general merchandise sales (with Tesco withdrawing from highly competitive non-food markets), much of the forfeited business has been recouped through savvy food offers and targeted price reductions.

"Moreover, Tesco describes reaction to its new Clubcard Plus scheme as “very positive”, and will likely have aided the grocer in augmenting performance at its larger out-of-town stores (although, confirmation of Clubcard Plus’s successes will have to wait until more detailed space analysis in its full-year results in April).

"All in all, when new CEO Ken Murphy arrives from Walgreens Boots Alliance in mid-2020, he will find (barring any nasty surprises) a carefully honed Tesco UK business running at the top of its game. While there is certainly work to be done on the international side (including a drastic reshaping in Central Europe and a likely sale of at least parts of its underperforming Asian business) the robust UK & ROI operation will afford him some breathing space to trial ambitious initiatives that its rivals may not be able to afford.''

Nigel Frith,

"Compared to its rivals, Tesco has outperformed the market this Christmas. This probably says more about the subdued performance of its rivals, rather than any outstanding performance by Tesco, which saw revenue drop on a comparable basis as softer sales in Europe masked better than forecast growth in the UK.

"This Christmas has been an extremely challenging market with supermarket sales growth the slowest in five years, according to Kantar. Whilst underlying household finances were better than in previous years, the politically unstable landscape in the lead up to Christmas meant restrained spending from customers. However, where they spotted some value, customers did dive in.

"Tesco has experienced a share price surge in recent months as the supermarket benefits from its restructuring programme. Today’s results have cemented its lead compared to rivals."

Bruno Montyene, Bernstein

"Q3 LfL of -0.4% and Xmas LfL of +0.1% were both in line with expectations, but the bar was set very high. Flattish in a very subdued market (+0.2% sales growth in the UK as per Kantar) is very strong when discounters add +10% space each year.

"This is also a material outperformance relative to peers (MRW LfL -1.1% in Q3 and -2.6% in Xmas; SBRY -0.7% Q3 LfL), contrary to what Kantar was implying (it had SBRY ahead of TSCO).

"Encouragingly, the Xmas trading performance was ahead of Q3, showing trend improvement, and over Xmas they outperformed peers on a volume and value basis."

Clive Black, Shore Capital

"Following on from competitor market updates this week that have indicated that the peak Christmas trading period in the UK has been a bit of a slog for the major grocers, Tesco, the largest player in the market, has given a solid report in our view.

"Following this update, we are minded not to adjust our FY2020 PTP and EPS expectations, which we last updated through upgrades on 6 November 2019.

"With respect to our Tesco equity investment thesis, there is no change, reiterating no change to our £2.12 billion FY2020 PTP estimate on an IFRS 16 basis. Management is on top of a number of levers around mix, enabling technology and cost efficiency to our minds, levers outlined at the June 2019 Capital Markets Day.

"With capital expenditure expected to remain disciplined, with a range of c£1.1-1.4bn, we see scope for onward EPS growth, boosted by Asia (which may yield a trophy sale) and Booker, with stronger free cash flow generation, hence our expectation of cash compounding."

© 2020 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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