Tesco announces its first-quarter 2021/22 sales on Friday (18 June), with the retailer keen to continue the momentum it experienced during its most recent full year, in which it reported a 6.3% increase in like-for-like sales.
The quarter, which runs from the end of February, is likely to experience a tough comparative impact, as it falls one year on from the start of the pandemic and the 'panic buying' that ensued as a result.
With this in mind, year-on-year sales are not the only metric to consider when looking at Tesco's first quarter performance, says analyst Clive Black of Shore Capital, with the "two-year sales stack, the change in online grocery participation and the direction of travel on COVID costs, mix and working capital" also worth bearing in mind.
Sales Growth For Tesco
Shore Capital is estimating 5.5% like-for-like sales growth for Tesco in the period, taking into account the lifting of COVID restrictions in the business' home market in the middle of May. In Ireland, the group estimates like-for-like sales growth of 4.0%.
In Central Europe, where CEO Ken Murphy recently noted that trading conditions had got "meaningfully tougher" in the past year, Shore Capital estimates that Tesco will see growth of 1.0% in the quarter.
"We would expect trading in the period since partial unlocking in England took place in mid May to have notably dipped against the comparative strength of strong sales uplifts in spring CY20," Black wrote in a briefing note. "As such, we will be interested in the two-year stack, where we sense that the revenue base will be materially ahead of what we anticipated in early CY20, that is c4.0% two-year UK sales growth."
Online Grocery Performance
Online grocery participation is likely to remain high for the quarter, but is expected to be slightly below the 15% mark that Tesco achieved during its most recent full year.
"We would expect some easing back in online grocery participation, but for it to remain at low teens participation levels," said Black. "Indeed, we see the evolution of the online grocery channel into demonstrable industry wide profitability as a clear plus for sector investment sentiment."
It will also be notable to see if Tesco makes any reference to the growth of 'rapid-delivery' services, which are gaining traction in the UK, Shore Capital added – rival Sainsbury's recently ramped up its Chop Chop service, for example, although this has thus far not proven itself to be a profitable medium.
Tough Base For Comparison
According to Russ Mould and Danni Hewson of AJ Bell, the first quarter will likely provide a "particularly tough base for comparison, as that was when the UK went into its first lockdown and consumers began to stockpile food and consumer staples".
As well as watching the performance of Tesco's online and convenience arms – not to mention its Booker business, which saw a decline in HoReCa sales last year, albeit offset by its retail business – analysts are also likely to watch closely how Tesco's 'Aldi Price Match' and Clubcard Price schemes are faring, having been launched into a "fiercely competitive market last year", Mould and Hewson state.
"Chief executive Ken Murphy has wisely not made himself a hostage to fortune by offering too much by way of specific guidance for the fiscal year to February 2022," they said. "He has simply noted that Tesco expects 'a strong improvement in profitability' even if trading conditions are likely to remain “volatile'."
"Profits should at least be helped by a decrease in direct costs to the business from COVID, which came to £892 million in the year to February 2021 and Mr Murphy has suggested that retail operating profit could return to 2019-20’s pre-pandemic levels, although uncertainties remain over sales volumes and channel mix, as well as Tesco Bank, although this is expected to return to the black this year."
Tesco recently announced the discontinuation of its purchasing alliance with Carrefour, and analysts will also be eager to see if the retailer has any plans to replace this with a new purchasing agreement.
© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Retail news click here. Click subscribe to sign up to ESM: The European Supermarket Magazine.
