Tesco’s better-than-expected Christmas results this morning (14 January) were a positive surprise, and industry analysts have already passed their verdicts, which we’ve collated for you below.
“Tesco’s Christmas trading blew out all expectations,” says Bruno Monteyne, senior analyst at Bernstein. “Last year’s Christmas was the first time we saw the first glimpse of Dave’s new customer approach (festive five, service, availability) and it beat all expectations last year.
”This year everybody, including us, thought compounding on those great numbers would be tough and at least see some step back in growth. On the contrary, another 1.3% LfL on top of last year’s -0.3% LfL. Success upon success, without mad vouchering, sticking to the new recipe means the recipe is working.
“Tesco even reports positive like-for-like sales in the more challenged Extra (Hypermarket) format over Christmas.
“Tesco was still doing some mass vouchering in the run up to Christmas last year, which wasn’t repeated this year. Without this vouchering last year Tesco indicates Q3 LfL would have been -0.5%. This is a good end to the year, indicating to us, that quarters of positive LfL for next year could very well be on the cards.
“Success upon success, without mad vouchering, sticking to the new recipe means the recipe is working”
“Improvement can be put down to the recipe first set out last January: better service (more staff), better availability (more range reviews completed) and better selected prices (5% cheaper than last year on key lines that matter for customers and the re-assurance of Brand Guarantee)
“All importantly in the UK’s deflationary environment, volumes were up 3.5% and customer transactions up 3.4%.”
“[The results] are very encouraging and pleasing for the management team,” says Clive Black, analyst at Shore Capital.
“Tesco’s business model is still undergoing considerable adjustment with limited visibility as to the margin profile of the group’s core chain in particular in the near term and further out. Those margins are critical to the earnings progression and so any contraction of the group’s stock ratings.”
“As anticipated, Tesco’s Q3 domestic recovery has slowed,” says David Gray, retail analyst at Planet Retail, ”with like-for-like declines widening on Q2, even if the shorter Christmas period delivered a more positive number. This was to be expected considering Dave Lewis has always said recovery would be choppy.
“The difficulty for Tesco is that, by being the UK’s largest retailer, it has most to lose from wider food price deflation and structural shifts”
”Even so, a slowdown is a slowdown. The difficulty for Tesco is that, by being the UK’s largest retailer, it has most to lose from wider food price deflation and structural shifts. With Aldi/Lidl gaining share at the value end, M&S Food ruling premium and Sainsbury’s holding the middle ground; Tesco is stuck between a rock and a hard place.
“While the mood from Cheshunt HQ may well be one of quiet optimism, many analysts will be asking why Q3 domestic sales declines widened, rather than narrowed.”
“The Christmas performance is more remarkable when considered in relation to Q3 which was down 1.5% LfL in the UK,” says Phil Dorrell, partner at Retail Remedy. ”The extra staff, Brand Guarantee and strong range delivering at the critical time.
“The estimated slow down in Aldi and Lidl’s LfL sales growth is a gift to Tesco that it must now exploit to protect market share from further erosion.
”Investment in price and customer service has cost Tesco margin, but has attracted customers for the longer term if the recent improvement in retail standards and customer service can be maintained for future growth.
“The estimated slow down in Aldi and Lidl’s LfL sales growth is a gift to Tesco that it must now exploit to protect market share from further erosion”
“Tesco’s Christmas numbers have shown there is light at the end of the tunnel,” says John Ibbotson, director at Retail Vision, ”but the weaker third quarter performance is a reminder of the hard work still ahead.
”The Dave Lewis turnaround plan appears to be working, with Tesco starting to push back against the fast-growing discounters Aldi and Lidl. The festive period aside, progress is achingly slow and there is nothing inevitable yet about the great Tesco turnaround.
”With all the major players dropping prices and the broader low food inflation environment, no grocer can expect a quick return to consistent sales growth.
”The challenge is to keep up the momentum and stay in the game. In this regard, Tesco will be thankful of its size, which means it can keep its prices down for longer than anyone else.
“What we shouldn’t lose sight of is the fact that a lot of the growth at Aldi and Lidl is coming from opening new stores. In this respect, the results of Tesco and indeed Morrisons this week should be seen in a more positive light.”
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