Shares in Tesco initially dipped today (14 June) after the publication of the UK retailer’s first-quarter trading update. However, by this afternoon, the stock had moved into positive territory. Here is a run-down of how some of the retail analysts in the City viewed the results.
“The issue for shareholders is whether or not Tesco can deliver volume growth in 2011 in the UK on its current base sales across supermarkets, hypermarkets and Express stores. We estimate volumes could be down 1.8% and, if 1.5% mix (ie Finest sales up 10%) is taken into consideration, volumes are down 3.3%. An improving international LFL trend has been helped by rising global GDP growth, especially in Asia and parts of Eastern Europe, like Slovakia and Hungary, remaining economically robust. We continue to see the main focus being on the recovery of the UK operations and a return to volume growth within core grocery formats. On that basis we remain disappointed in Q1” – MF Global analyst Mike Dennis.
Go deeper with GlobalData
“Tesco is a huge global beast, but it is judged by its UK performance and the news that UK LFL was still slightly negative, on an ex-VAT and ex-petrol basis, is disappointing, despite a better outcome in Food (albeit May was clearly more subdued). The problem remains non-food, with the financial director talking about a 5% LFL fall in this area in Q1 in the UK” – Arden Partners analyst Nick Bubb.
“Tesco stated that it is ‘performing in line with market expectations’ and its outlook for the full year remains unchanged. Moreover, in the UK, the company expects to see ‘visible improvement later in the year’ in non-food performance as ranges and stores reflect recent changes implemented by the new team. This seems to support our view that the UK market – characterised by concentrated market share amongst listed companies – will remain rational” – Sanford Bernstein analyst Christopher Hogbin.
“Tesco was always going to be swimming against the tide with this update. A cocktail of anaemic UK numbers, high expectations and a market in little mood to take prisoners have conspired to mark the shares down in early trade. The company cited “subdued” sentiment and “constrained demand” as being responsible for a weak performance in the UK and other key markets.
“There are, however, other positives within the statement – group sales increased over 7% year-on-year, the US business is showing signs of life and overseas demand in the likes of China continued to underpin the overall growth story. In all, Tesco seems to be seen as tomorrow’s story. The planks to its strategy are in place, particularly in furthering international diversification. Until the company is seen to be delivering fully on this potential, the shares may well continue to struggle to make significant progress” – Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“Group sales growth came in at 7.8% including petrol and 6.7% ex-petrol, making Tesco just about the fastest growing international food retailer in the world. Most of its peers are experiencing annual sales growth in the 1-5% range, only Ahold is achieving more than 5%.
“Tesco UK’s food operation appears sound in our view, at least ‘in the pack’ from a market share performance perspective, which represents an improvement on that recorded in the last year or two. Tesco’s international trading momentum was largely more robust than was the case in UK.
“In Europe … the most notable features in Europe were weak figures in Ireland but very strong LFL sales in Slovakia and sound growth in the Czech Republic and Hungary; the size of the Irish market within Tesco’s European region dragging regional LFLs down. The most notable features [in Asia] from the company’s perspective in the quarter were very strong sales growth in Thailand but South Korea was more subdued at 1.2% LFL – progress but better than Q4 2010/11. We believe that management will be pleased that [Fresh & Easy] trading momentum is strong, albeit there is clearly much to do before a clear trajectory of improvement is demonstrated” – Shore Capital analyst Clive Black.
