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.

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.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Shore 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.”