Tesco Christmas results: what the analysts say

Tesco boss Dave Lewis today reported a fourth consecutive quarter of increased sales in the UK. With UK like-for-like growth of 1.4% in the 19 weeks to 7 January November and Christmas sales up 0.7% on the same period last year, here is what City and retail analysts had to say of the results.

Bruno Monteyne, Bernstein: “This means eight quarters of positive LFL volume growth, and Tesco gained market share for the first quarter since 2011. Tesco’s results in the UK are broadly in line with market expectations, although performance in Asia and Europe will disappoint. That is offset by strengthened profit guidance and underlying volume growth being materially stronger than what the headlines suggest. The recovery continues at its solid pace.”

Clive Black, analysts at Shore Capital: “In the big scheme of things we see this as a pretty good update, slightly beating our expectations, which is welcome. Tesco speaks of easing food deflation in the UK, in tandem with its peers, which we deem to be broadly good news for the sector. Shore Capital forecasts trading profits of £1.23bn, a figure that we are not inclined to adjust although it is not inconceivable that the company could yet do a bit better. From an investment thesis perspective, we like the self-improvement taking place at Tesco with the management delivering higher quality and more sustainable earnings, something that is again welcome from a sector perspective. We see this as a good statement, albeit perhaps not good enough for the ‘uber’ bulls.”

John Ibbotson, Retail Vision: “Tesco’s revival continues apace, with a strong Christmas trading period and third quarter. More ominously for its competitors, Tesco has managed to increase its market share in a period of cut-throat competition.With Morrisons applying the afterburners and Sainsbury’s also strengthening after its Argos acquisition, this is no mean feat. Lower prices, especially on fresh food and a massive investment in the Christmas range and premium Tesco Finest brand have brought the customers flocking back. There’s a tough year or two ahead for everyone in the sector, but there’s now no doubt that Tesco has started to hits its stride.”

Richard Lim, chief executive of Retail Economics: “Tesco’s turnaround continued to gather momentum with the behemoth posting impressive trading in the three months to Christmas.Its laser-like focus on the core UK food business through deeper price investment and further asset disposals has halted the loss of market share against the smaller but faster growing discounters. Non-food also saw impressive gains in both clothing and toys. Our research showed a quarter of households considered themselves as ‘just about managing’ (JAMS) when it came to their personal finances. Tesco will be well placed to fight in the fiercely competitive food battle with the industry facing significant cost pressures.This year will prove much more challenging. We forecast inflation to hit 3% this year which will plunge real wages into reverse for many households.”

Catherine Shuttleworth, CEO at shopper and retail marketing agency Savvy: “The news from Tesco this morning is strong and confirms that its recovery plan is firmly heading in the right direction. We attribute much of Tesco’s improving performance to getting the basics right - better customer service, high levels of availability and a stronger pipeline of new differentiated products. Savvy’s own research highlights that Tesco scores well with shoppers in trust, quality and value for money. Another point worth noting was its effective Christmas advertising campaign. While it may not have attracted the column inches received by some of its rivals, the strategy was grounded in solid insight and ultimately did the job it was supposed to do. We expect Tesco, like its competitors, will find 2017 challenging. However it’s scale, momentum and clear strategic direction place it in a position of relative strength.”

Danielle Pinnington, MD at shopper research agency Shoppercentric:“The figures from M&S and Tesco, following on from Morrisons’ positive news, show the benefits of focusing on what shoppers want: appealing ranges, good quality, availability, service and value for money. As we move towards Brexit, shoppers will be keeping an eye on pricing, but as we know from the recession they will make their own decisions on how to get the most out of their budgets. They will make savings where they feel they can – and that won’t always be about lowest price. Retailers need to put the lessons learnt from the recession in practice – which means offering the ranges and solutions that support shoppers through any difficult times ahead, and delivering value across the spectrum, not just lowest price.”