Tesco is budgeting for only 2% like-for-like (LFL) sales growth in the UK rather than its long-standing 3-4% guidance, according to retail analysts at Shore Capital.
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In a note, following a meeting with Tesco management retail analysts Clive Black and Darren Shirley said: “With the general consumer slowdown Tesco is cutting its cloth accordingly budgeting for 2% like-for-like sales growth in the UK rather than the long standing 3-4% guidance.”
The note added: “Such budgeting is a significant change to our minds and indicates the seriousness of the economic slowdown and its likely duration. It is also sensible; Tesco is aligning its costs (labour, distribution and the supply chain) for tougher times”
Shore Capital said that the alignment of costs was part of the reason why it had not changed its estimates of the company.
“Given management’s comments on the tightening UK economy we had considered bringing back our forecasts, despite management remaining comfortable with market expectations. However, we have decided to retain our 2008/9F EPS estimate of 27p and 30p for 2009/10F,” the note said.
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By GlobalDataShore Capital added that it felt Tesco shares should trade at a premium to its UK rivals, given its international expansion.
“2008 is a massive year of growth for Tesco internationally. With the Korean acquisitions, which management is clearly delighted with, 14m sq ft will be added. This space does provide fuel for future growth, part of the whole differentiating factor between Tesco versus Morrison and Sainsbury,” the note said.
“We believe that Tesco stock should trade a premium to its UK competitors. In terms of market conditions Tesco says that Asia is proving stronger than Central Europe, but points out that the group does benefit from the geographic breadth and the discount nature of its offer in its international operations.”
