Tesco’s half-year numbers were greeted with a broadly positive response from retail and City analysts, although there is some concern over the UK’s largest retailer in its domestic market.
Neil Saunders, consulting director, Verdict Research
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“The headline number shows a robust performance from Tesco and demonstrates its strategy of driving growth through international expansion continues to pay dividends. The improved sales performance of the Fresh & Easy concept in the US is particularly encouraging and we believe that over the longer term this continues to represent a major opportunity for both sales and profit growth.
“However, beneath the headline number UK performance is far more muted and excluding the boost from higher petrol prices and the rise in VAT, underlying sales growth is pretty anaemic. As the largest grocer in both sales and space terms it is becoming increasingly difficult for Tesco to eke out incremental growth from the UK market.”
Christopher Hogbin, senior retail analyst, Sanford Bernstein
“Tesco reconfirmed its commitment to its US business, announcing that it will reaccelerate the rate of store opening in the US to circa 2 stores per week and now expects the US business to reach profitability in 2012/13. The breakeven profitability is earlier than we (and we believe many investors) had anticipated and if Tesco can deliver against its targets means the narrowing of the operating loss from GBP160m last year to zero over three years should add circa 5% to group EBIT.
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By GlobalData“We expect the next several data points from Kantar (a market research company) to show that UK grocery market growth accelerating against easier comps and given accelerating food inflation. Moreover, we expect Tesco’s relative sales performance to improve in the coming months as Sainsbury’s and Morrisons fully anniversary the benefit of the co-op stores they acquired last year.
“The improving macro-economic environment is already reflected in the improving LFL sales growth and margins reported in H1. We expect Tesco’s planned investor tours of China and South Korea in November will further remind investors of the strength of Tesco’s international operations and provide more confidence in the trajectory and returns progression of the international business.”
Justin Scarborough, retail analyst, RBS
“Tesco is in our view, a high quality and growth company. Of course, at times given its scale, that there are occasional lumps and bumps but it is a pretty good retailer and has a good record in our view, over many years, of adapting to whatever trading conditions it faces.”
Richard Hunter, head of UK equities, Hargreaves Lansdown
“The departing chief executive leaves a steady ship which is poised for further success. Tesco’s geographical diversification continues to come into its own, particularly in Asia, where its contribution has helped propel trading profit to exceed expectations. Furthermore, after a rocky start, the US business sees profitability emerging on the horizon. Nearer to home, the UK performance remains robust, helped by the popularity of its Finest range and the growing contribution of its online presence and Tesco Bank. The fierceness of competition within the food retailing sector along with consumer caution remain genuine headwinds, although there has been a focus on productivity to mitigate these threats.”
