Tesco has posted an 11.3% increase in group sales, to £56.9 billion (€66 billion) for full-year 2018/19, with its UK business seeing a 1.7% increase in like-for-like sales.
According to Tesco chief executive Dave Lewis, the business has now achieved most of its turnaround goals and a “broad-based improvement” across the group.
Here’s how leading retail analysts viewed its performance.
Russ Mould, AJ Bell
“Will Dave Lewis ride off into the sunset, now [that] he [has] achieved, in his own words, ‘the vast majority’ of his turnaround goals? After all, ‘Drastic Dave’ was brought in from Unilever as a Mr Fixit, to repair a business which had been badly damaged by a loss of focus, declining sales, and an accounting scandal, and the commentary in Tesco’s latest results do feel like a bit of a my-work-here-is-done-type statement. Possibly his biggest strategic call, the acquisition of wholesaler Booker made a big contribution, as annual results beat expectations.
“The core grocery business is ticking along nicely, profitability has improved markedly, and the prospective threat from an Asda-Sainsbury combination is receding in the face of regulatory opposition. Notably, increased cash generation means the company is in a position to be increasingly generous with its dividend and pay down debt.
“Tesco will recognise that it cannot rest on its laurels, with the German discounters Aldi and Lidl continuing to snap at its heels and challenges posed by the current uncertain political backdrop in the UK.”
Alastair Lockhart, Savvy
“Today’s Tesco’s results are impressive on multiple levels. Principally, we see a strong financial performance, driven by the turnaround of the core UK grocery business. Innovation is back at the top of the agenda, and shoppers are responding well. ‘Exclusively at Tesco’ has reinforced the retailer’s own brand and has provided valuable differentiation in a competitive market.
“Finally, the Booker merger is confirmed as a move of strategic genius, delivering financially, but also providing critical buying scale, at a time when it now looks unlikely that the Asda-Sainsbury’s merger will proceed.”
Clive Black, Shore Capital
“Tesco has continued to make broad-level progress under the tutelage of Dave Lewis, in our view, albeit this has not been a pathway without notable bumps in the road. In FY2019, the group had to contend with challenges in Thailand – which turned out to be poorly communicated, much to the market’s consternation – notable losses in Poland, ongoing challenges in the field of general merchandising, and a British court case that did little to enhance the business’s reputation.
“Against these challenges, Tesco continued to deliver a high level of functional capability, particularly in its core markets in the UK, where, in FY2019, the Farm Brands value-reinforcing initiative was augmented by the introduction of the somewhat deflationary ‘Exclusively at Tesco’ sub-brands.”
Bruno Monteyne, Bernstein Research
“Those are good numbers, but a small miss, as they are a little bit softer than the Christmas like-for-likes that were published earlier.
“Group H2 underlying EBIT of £1,273 million [€1,480 million] – +11%, versus consensus of £1,147 million [€1,333 million]. H2 UK & ROI – including Booker – margin of 3.28% was up two basis points versus consensus, and a 62-basis-point margin improvement HoH – H1 2018: 2.66%. In relation to the 3.5%-4.0% group – excluding Booker – margin target, they achieved 3.79% in H2, which is well within that target range for next year.
“However, there is some seasonality in Tesco’s margin, so we should not consider this a ‘job done’ just yet. Management remain confident that they will meet the 3.5%-4.0% ex-Booker Group margin target and are comfortable with consensus expectations for FY19/20.”
David Beadle, Moody’s
“Tesco’s underlying operating profits are ahead of our expectations, while the company’s Moody’s-adjusted debt was lower than we anticipated. The profit uplift is underpinned by continued operational progress in the core UK business [and] a first-time contribution from Booker, as well as strong year-on-year earnings growth in Central Europe.”
Thomas Brereton, GlobalData
“Tesco chief executive Dave Lewis – living up to his nickname of ‘Drastic Dave’ – has been mercilessly streamlining the business over the past four years, ditching divisions that obstruct the group from reaching the promised operating margin level of 3.5% by this time next year. In the UK over the last 12 months, this has included the closure of struggling Tesco Direct and the planned disposal of lower-margin fresh-food counters at 90 stores. Simultaneously, pilot schemes – such as its new discount format, Jack’s – have been carefully measured, with Tesco dipping a toe into new concepts, rather than committing large sums of capital expenditure, but the real question is, what next?
“With the turnaround targets all but achieved, Tesco now needs to set itself some new objectives. With the lack of clarity around Brexit, the short-term aim must be around fortifying supply chains to ensure no disruption in availability if a no-deal materialises. However, it must also widen its field of vision to generate longer-term benefits. In particular, it should be looking at the struggles of main rival Sainsbury’s, and try to leverage its difficulties to pickpocket customers that have become disillusioned and are looking for a change.”
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
