Tesco H1 Results: What The Analysts Said
Tesco posted positive like-for-like sales in the first half of its financial year, with a 1.0% rise across the entire group and a 0.6% increase in its core UK market. Here's how the analysts saw it.
Darren Shirley, Shore Capital
"Tesco's FY2017 interim results were largely, if not totally, devoid of major organisational re-engineering, unlike the prior couple of editions, further reflecting the progress made by Dave Lewis [CEO] and his team in stabilising and recovering this once-great organisation. The results themselves represent demonstrable operational improvement from the business, with cash sales, and not just volumes, now positive in the UK, in particular, alongside much-needed margin accretion. We welcome this progress. However, the operations in isolation do not characterise the Tesco investment thesis. The burden of broad-level indebtedness and the corresponding high solvency ratios continue to prevent us from taking a more positive view on the group's shares."
Himanshu Pal, Kantar Retail
"Another period of improved like-for-like sales for Tesco has vindicated some of the structural changes Dave Lewis has made. The business has benefitted from divestment of non-core assets and its return to the basics, e.g. a focus on simpler pricing (permanently lower prices, rather than complicated promotions), an improved quality of fresh foods (especially Farm Brands) and in-store service levels. However, despite the improved performance, Tesco continues to face strong headwinds as competitors ramp up their capabilities, for example, Sainsbury's acquisition and subsequent integration of Argos and Morrisons' partnerships with Amazon and Ocado, and the recent disclosure around its pension deficit is likely to accentuate the focus on cash management, fuelling further speculations around divestments of international markets in South-East Asia and Central Europe."
Zoe Mills, Verdict Retail
"Like so many of its rivals, Tesco is keen to emphasise that its growth was driven primarily through volumes, with prices now more than 6% lower than in September 2014. Thus, to witness even such modest like-for-like growth of 0.6% (UK) is a call to celebrate, given the struggles of its main rival, Sainsbury’s, which has yet to see positive like-for-like growth this financial year. Despite some negative press attention, its fresh-food brands, such as the discount [Farm Brands] lines, have performed strongly, so much so that it has increased own-brand space in its larger stores by up to 10%. With the success of Aldi and Lidl, Tesco’s focus on its own brand appears to be well placed, and will be beneficial, as consumers focus more on price and quality, rather than the origin of their food."
Joshua Raymond, XTB.com
The key news here is UK like-for-like sales growth accelerated in the second quarter, to 0.9%, from 0.3% in Q1. After consecutive quarterly sales declines, that's good to see, and total sales volumes also rose. However, with Tesco cutting prices by more than 6% to meet the high competition in the sector from budget grocers, this has also clearly had an impact on margin. That being said, it's also clearly getting traction, with the value of food sales hitting their highest levels since 2013. So, in this sense, Tesco is finally starting to drive back lost footfall to its stores. Perhaps the recovery is now gaining momentum.”
Bruno Monteyne, Bernstein Research
"Tesco UK has achieved 21 months of positive like-for-like volume and transaction growth – the hallmarks of a retail recovery. Tesco UK & ROI is still showing upwards margin momentum. […] This is a fantastic set of results for Tesco, delivering on all aspects of the UK recovery and providing solid future margin guidance."
Barclays European Food Retail Equity Research
"Over the last two years, the key variable in estimating Tesco's value has been the margin outlook, particularly in the UK. Tesco's limited guidance and very mixed profit delivery has left an extremely wide range of sell-side estimates. We expect sentiment to change significantly, now that Tesco has outlined its margin ambitions, especially considering that its 1H performance already shows very strong momentum. […] Nevertheless, the clear beat on 1H profit and the very welcome guidance means we expect the share price to build on its already strong performance."
© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.