Bruno Monteyne, Bernstein
Closing the 43 unprofitable stores makes sense, as there is no point retaining cash draining assets, especially as Tesco likely has a nearby store to pick up at least some of the sales. These are 43 stores across all store formats (about half Express), and roughly 2% of UK space (0.5 to 1 million sq ft). This is in line with our view that the excess space problem in the UK won’t be solved by large scale store closures.
Tesco has, as expected, begun to sell off some of its non-core assets. Blinkbox and Tesco Broadband have already been sold ). Blinkbox was loss making, so this will improve profitability. Dunnhumby is likely the next to be sold, with “the appointment of advisors to explore strategic options”. They state these are “first steps”, with further initiatives to maximise shareholder value to come. Speaking to the company this morning, it is clear that they know this is not the end of the disposal program, The Bank and Asian Assets likely next in the firing line.
John Ibbotson, Retail Vision
Dave Lewis has grasped the nettle and done what needs to be done. Finally, we are witnessing the beginning of the Tesco fightback. Tesco needed a completely new direction to thrive in the brave new world of retail and hang onto its market share. It now has one. Previous management lacked the bottle to do what needed to be done. Lewis, it would seem, has bottle aplenty. He has taken some tough decisions.
The next step is to communicate this robust plan clearly, to staff and shareholders alike, and then to implement it — rigorously and ruthlessly. The journey won’t be easy but if anyone is capable of re-establishing itself as the leading force within grocery, and the consumer champion, it is Tesco.Aldi and Lidl may finally have a fight on their hands.
David Gray, Planet Retail
This morning’s numbers, though offering some respite for Tesco’s embattled CEO, prove that turnaround will be slow, painfully so. Although UK like-for-like declines have narrowed from the chaos seen at Q2, this comes at a high cost - namely to profits. The words ‘buying success’ come to mind in the wake of a festive performance driven at least in part by widespread vouchering activity.
If Tesco is to rebuild its battered balance sheet without embarking on major asset sales, it will need to realise plans to cut costs. Even so, the tempting riches of the company’s property portfolio may prove too much to resist. Tesco may yet indulge in a measured number of sale and leasebacks. After all, the disposal of peripheral businesses, like the Dobbies garden centres and Tesco Homeplus non-food superstores - as has been mooted - may not raise sufficient funds to shore up the balance sheet.
The fact is Tesco is still reeling from the effects of the accounting scandal, crucially lacking the manpower to helm its largest vessel, namely the UK. Tesco will need to plug this leadership gap fast if it is to find solutions to faltering sales and lacklustre profits at home.
Even the overseas empire, once Tesco’s reliable sidekick in a tight spot, continues to struggle. From Europe to Asia there seems no end in sight to stuttering sales. Worse may yet be in store for a retailer seemingly bereft of solutions to its global decline.”
Danielle Pinnington, Shoppercentric
Whilst the better than expected Christmas sales will be a small relief, it is clear from the plans announced that Tesco realise there is still much work to be done to re-connect with shoppers. What’s really interesting is that Dave Lewis talks about the value of listening to customers, but all the major changes detailed so far are focused on saving money and selling non-core assets. Shoppers will want to see an improvement in basic shop-keeping - shelf replenishment, queue management, better service and store environments that are easy to shop - before feeling confident Tesco really has changed for the better.
Bryan Roberts, Kantar Retail
Amidst this morning’s Tesco statement are a lot of nettles being grasped, notably concerning capex, the dividend, disposals of non-core operations, the long overdue head office rationalisation, store closures, the pension scheme and an evaluation of further options to maximise shareholder value, which possibly hints at some international moves.
There are lots of bright spots too. By putting hours back on stores, Tesco rescued Christmas, putting in a very creditable performance with an encouraging direction of travel. Matt Davies is a left-field but excellent choice as new CEO of the UK and we are also heartened by volume gains in fresh food over Christmas, the decent showing from c-stores and online and today’s raft of price cuts. A long way to go, but Dave Lewis is pulling the business in the right direction.