Tesco's First-Quarter Results – What The Analysts Said

By Steve Wynne-Jones
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Tesco's First-Quarter Results – What The Analysts Said

Tesco has reported a 1.0% increase in like-for-like group sales in the first quarter of its financial year, with its UK business seeking like-for-likes up 0.5%.

Commenting on its performance, Ken Murphy, chief executive, said, “We delivered a strong performance in the first quarter, even as we lapped the high demand of last year due to the pandemic."

Here's how leading industry analysts viewed the retailer's performance.

Russ Mould, AJ Bell

“Tesco’s first quarter 2021 figures were never going to live up to last year’s comparable period, as the three months to May included the period where the nation went crazy stockpiling food and drink as the pandemic took its grip. The supermarket saw 7.9% like-for-sales growth in Q1 2020, setting the bar very high this time around.

“That might explain why Tesco is trying to push two-year figures in its latest update, to emphasis the unusual nature of last year’s performance and to convince the market that its business hasn’t ground to a halt.


“To its credit, 1% like-for-like growth on a one-year basis is not a disaster. It implies that Tesco is holding its own against tough competition in the grocery space and no doubt retained lots of the customers it won in 2020 from having wider availability of online delivery slots than its peers.

“General merchandising and clothing sales shot up in the first quarter of 2021, perhaps because people were focused purely on food and drink a year earlier, so the comparable figures were easy to beat.

“Clothing sales will have suffered in the early stages of lockdown, so it makes sense to see them bounce back as lockdown restrictions ease and people are able to get out and about. Wholesale sales via Booker are also picking up as the hospitality industry reopens.

“Tesco has achieved so much in the past year, like many other supermarkets. It dramatically doubled the capacity of its online delivery operations in a very short time during COVID, and it went above and beyond to keep shelves stocked and customers happy. Tesco is now a stronger business and it will be interesting to see what it does next."


James Andrews,

“The outlook statement highlights that Tesco is in no real danger as they continue to maintain their performance on top of last years exceptional sales. However, how they weather the future of the pandemic and lockdown easing will give a clearer indication of where Tesco can compete among other retailers in the market.

“The retailer is also alive to changing shopping habits, with more people doing larger weekly shops - either online or in-store - and fewer customers popping in on the way to or from work as offices closed and flexible working increased.


“Changes announced already include the decision to re-brand all its ‘Metro’ stores as either ‘Express’ or ‘Superstores’ to better reflect how customers use them.

“With fuel sales expected to rise, we can expect a continued strong performance from its larger stores - but competition from budget competitors such as Aldi and Lidl hasn’t disappeared. The following year will be one to watch to see how the company reacts to society opening up, as well as how effective its new price-matching schemes will be."

Clive Black, Shore Capital

"We see this update as sound and consistent with our FY22 EPS expectations. Still quite early in the current financial year, we are not adjusting our EPS forecasts, and as such, we would be surprised to see much movement around consensus at this juncture.

"Accordingly, a frankly dull stock in recent times is unlikely to offer a noble catalyst for rapid share price appreciation in terms of near-term upward earnings momentum, albeit we continue to see a free cash flow yield of 8%+ (with most of that resource going to shareholders in one form or another) as representing good value."


Richard Lim, Retail Economics

"These are impressive results against unprecedented growth from last year. Ongoing restrictions around socialising, continued working from home and disruptions across the hospitality sector funnelled spending towards the grocers.

"Despite last year's surge towards online, the retailer maintain growth in this channel, reflecting significant investment made to boost capacity and consumers' ongoing appetite for home deliveries. The key question is whether the shift to online will persist beyond the effects of the pandemic. With one in ten consumers having tried online grocery shopping for the first time since the pandemic, it seems inevitable that many will adopt a new way of shopping permanently. For others, the reliance on convenient home deliveries is likely to have embedded, supported by more working from home.

"While a new level of online demand will help improve operational efficiencies across the channel, there are still doubts on the overall impact on profitability. As online accounts for a larger proportion of overall sales, variable costs associated with servicing the online business will rise, as fixed costs across their expansive store estate remain. This pincer movement of rising costs will put significant pressure on profits, with further cost-cutting likely to be the immediate lever to pull."

Ross Hindle, Third Bridge

“The lifting of lockdown restrictions, coupled with an end to the furlough scheme and a potential rise in unemployment all represent headwinds for Tesco and its big 4 counterparts.”

“Tesco has already lost 30 basis points of market share since the start of 2021, with discounters being the main benefactors. Many of our experts argue the current environment plays into the hands of the discounters and the big 4 will continue to lose share throughout the summer.

"It is believed that Tesco will continue with it's Aldi price-match strategy in order to remain price-competitive, however it is questioned how sustainable a low-price strategy is given current inflationary headwinds.”

“Tesco’s large number of city-centre convenience stores is likely to be its Achilles heel until workers return to the office en masse. Although volumes might be offset by gains in online, profitability will be hampered longer-term.”

“Our experts believe Tesco derives an advantage from its white-label offering within fresh food and if the Group can successfully improve the basket weighting of these items, it will remain competitive with like-for-like sales attractive.”

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

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