Tesco (TSCO) has announced first quarter UK like-for-like sales growth of 2.3% and a 1% rise in first quarter group like-for-like sales, its sixth consecutive quarter of organic sales growth. Here’s how leading City analysts have reacted to the news.
Analysts at Jefferies said that although Tesco had delivered strong results, consumers are in a period of political uncertainty which could leave the retailer vulnerable.
“Tesco’s Q1 sales confirmed a strong delivery in the UK, which should underpin short-term earnings expectations. Despite this, the UK consumer backdrop is now vulnerable to a protracted period of political uncertainty. And as a result, any relief rally could prove short-lived.
“Given Q1 group LFL of +1% (or 1.6% when adjusting for the discontinuation of bulk selling in Thailand, an unprofitable business; this is a change that we had not reflected in estimates), well ahead of 0.4% in Q4 16/17. Today’s call confirmed comfort with current consensus expectations for 17/18, with JEFe/cons forecasting EBIT growth of 15%/17% mainly due to UK retail margin recovery (of 30bps in our case, closer to 40bps for the Street).”
Partner at Retail Remedy, Phil Dorrell said Lewis was “hell-bent” on regaining the power of previous decades.
“A solid set of like-for-likes for Tesco’s first quarter of trading which flies in the face of struggling volume sales for UK grocers.Tesco are on a roll getting their customer mojo back; stores are easier, more engaging and comparatively better value than they were a year ago. Customer-centric decisions have helped grow sales 6 quarters on the bounce.”
“For Lewis, fixing the operation is not enough however and he is hell-bent on regaining the power of previous decades and realises corporate relationships is the key.”
Dorrell also points to the latest concession with Dixons as a potential footfall driver.
”Tesco will also be banking on a footfall boost with the new Dixons Carphone concessions creating a ‘destination’ in store for electricals.That footfall might be walking straight passed Tesco’s own electrical offer however, so measuring the performance of both departments will be telling”
“Just when the FRC closed the investigation into PWC and their role in Tesco’s accounting scandal, Tesco shareholders have something else to make noise about: the Booker deal and Lewis’s relocation package. Shareholders may have initially baulked at Lewis’s remuneration, but from what they used to have compared to what they have with Lewis, there is little to complain about.”
John Ibbotson at Retail Vision described the result as “remarkable” against the current inflationary background.
“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.”
Ibbotson did warn that the combination of inflation and low wage growth could present a threat to the retailer.
“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.
“Tesco’s looming merger with Booker could prove a distraction, especially as the Competition and Markets Authority starts its review, but if it goes ahead the deal will further cement Tesco’s comeback.”
Catherine Shuttleworth, CEO at Savvy described the results as a “transformation story”
“Another positive result on the Tesco transformation story! 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.”
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