Tesco H1 Results: What The Analysts Said
Tesco announced its first-half sales performance yesterday, which was better than expected, with a 1-per-cent drop in the UK and Ireland, compared to a 5.6-per-cent drop in the same period last year. Here's how some of Europe's top retail analysts viewed its performance.
David Gray, Retail Analyst at Planet Retail
“As expected, the numbers indicate further signs of stabilisation at Tesco’s domestic unit, with like-for-like declines narrowing on those reported at Q1. There were also encouraging signs on volumes at Tesco, indicating this is a volume-led recovery. These figures have firmly cemented the split in the UK mid-market into two camps: Tesco/Sainsbury’s showing signs of recovery and Asda/Morrisons being the laggards. Considering Tesco was in the throes of the accounting scandal just 12 months ago, being in the former camp is an achievement in itself."
Sophie McCarthy, Retail Consultant at Conlumino
"Tesco chief executive Dave Lewis has instigated a substantial programme of change at the grocer since his appointment in autumn 2014 that is beginning to produce some positive signs of progress. […] However, the downside to the changes he has instigated is that profits continue to be impacted. Tesco made £354 million in group operating profit in H1, down 55.1 per cent on the same period last year. Following the rise of German discounters, Aldi and Lidl, who contributed to a wider consumer shift towards simple, everyday-low-price models, a ‘new normal’ has emerged, where the Big Four supermarkets are no longer immune to their smaller rivals. They have all been forced to reassess their position in the market as they experience contracting like-for-like sales and deflationary price pressures."
Darren Shirley, Shore Capital
"It is fair to say, to our minds at least, that Dave Lewis deserves enormous credit for stabilising a ship that was in danger of sinking. However, taking the good ship Tesco to a place where it has: a) strong solvency ratios, b) sustainable sales growth and positive operational gearing, c) equity valuation multiples that make the stock look attractive on market comparable ratios, and d) recommences a dividend stream that is well covered, attractive and sustainable, seems a very long way off."
Barclays European Food Retail Equity Research
"The recent divestment of Korea and the switch to a new headline profit measure make it harder to assess these figures, but, fundamentally, we think Tesco's H1 results are within the range of expectations – encouraging on sales and fine on overall profits. There is no change at all in Tesco's aspiration to match last year's operating profit number, although excluding Korea and on the new headline measure, the comparable figure falls from £1.39 billion to £0.95 billion (which should not be a surprise). The company is not talking up the UK market, which 'remains challenging', but there is some evidence of improving momentum."
Connor Campbell, Analyst at Spreadex.com
"A worse-than-forecast fall in profits, from £799 million to £354 million, greeted Tesco investors, alongside a 1.1-per-cent drop in like-for-like sales that was somewhat mitigated by a 1-per-cent increase in its international sales. Yet, after a surprisingly strong set of results from Sainsbury’s last week, with the orange supermarket’s better-than-expected full-year outlook causing a sector-wide surge, Tesco’s figures have arrived to remain [...] the biggest of the Big Four is still in the midst of an unenviably tough period. Every little helps, indeed."
© 2015 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.