Two successive quarters of like-for-like growth at Tesco (TSCO) got investors on board as CEO Dave Lewis’ efforts to turn the supertanker around continued to show progress. It is the first time in more than five years that the retailer has achieved the feat.

Shares jumped 2.5% to 170.5p - the highest the stock has been since the end of May - by Thursday lunchtime after Tesco updated the market on its first quarter trading. The share price has now bounced back almost 12% since Friday, recovering after falling to below 150p during June.

Group like-for-like sales rose 0.9% in the 13 weeks to 28 May, mostly driven by a 3% hike in international like-for-like revenues. In the UK, Tesco recorded a smaller jump in like for likes of 0.3% as the new Farms brands in fresh caused a deflationary impact of -0.7%.

Jefferies analysts said the update was as expected, with like-for-like progress diluted by major price reinvestment. “Our neutral view balances out the progress made on trading momentum against uncertainties on freehold repurchase requirements, the uncertainties implicit within the upcoming Asda change of leadership and (to a lesser extent) Amazon Fresh impact,” it said.

Planet Retail senior retail analyst David Gray called the update “encouraging”. “Upward-facing like-for-likes also come at a time when deflation is still an issue for the wider industry, showing just how far Tesco has come,” he said. “That said, Asda’s decision to focus squarely on market share rather than profitability as a performance indicator could entail some headwinds for Britain’s biggest grocer, although, given its present woes, it’ll undoubtedly take some time for Asda to return to full strength.”

David Stoddart, analyst at Edison Investment Research, added that Tesco was working “very hard for small gains”. But John Ibbotson of Retail Vision was more upbeat: “Thanks to Dave Lewis, Tesco’s recovery is back on track and he has managed it in frankly brutal market conditions. Project Renewal, rather than just another empty marketing term, really does seem to be working. In dragging the Tesco supertanker off the rocks and putting it back on course, Dave Lewis has achieved an extraordinary feat.”

Majestic Wine (WINE) shares jumped 4.4% to 455p on Monday as its core retail business reported the first like-for-like sales growth for four years. The stock has doubled in value in 2016, making the group worth about £322m. But the share price has since fallen 6.1% to 427p as the City weighed the more than 30% drop in profits as Majestic invested in growth.

Source

Edward Devlin

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