Tesco like-for-likes rise over Christmas: What the analysts say

“Tesco showed signs of a fightback against discounters Aldi and Lidl over the festive period, delivering a UK Christmas like-for-like performance well ahead of market expectations and comfortably beating the comparable trading of rivals Morrisons and Waitrose.

“In the lead up to its more impressive festive trading performance, Tesco’s third-quarter trading – for the 13 weeks to November 28, 2015 –very much reflected its recent negative trend. Nonetheless, these figures were distorted by store closures as well as a cutback on heavy promotions, such as ‘£5 off £40’, which were employed heavily the previous year.

“Stripping out the impact of these changes, Tesco has shown a marked improvement in putting the customer back at the heart of its proposition, particularly over Christmas, when sales volumes were up 3.5%.

“Tesco has shown a marked improvement in putting the customer back at the heart of its proposition”

George Scott, Conlumino

“To this end, a further shift away from give-away promotions to deeper investment in base price cuts and its brand match, coupled with improved availability were particularly key. The introduction of 4,000 additional ‘here to help’ in-store colleagues, will have undoubtedly boosted in-store standards.

“Elsewhere, demand for online grocery shopping led to a record number of orders on December 22, which was certainly helped by an improved price and service reputation.

“Tesco’s UK performance gives hope that a focus on developing a well-balanced positioning around competitive prices and added value can help claw back share from Aldi and Lidl, especially amid reports that sales growth at the discounters’ established stores is becoming more subdued.” – George Scott, Conlumino

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“Tesco’s Christmas numbers have shown there is light at the end of the tunnel 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.” – John Ibbotson, Retail Vision

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“Tesco was not going to be left out in the week of Christmas trading surprises, delivering extraordinary like-for-like sales for the Christmas period.

“The Christmas performance is more remarkable when considered in relation to the third quarter, which was down 1.5% on a like-for-like basis in the UK.

“The Christmas performance is more remarkable when considered in relation to the third quarter”

Phil Dorrell, Retail Remedy

“The estimated slowdown in Aldi and Lidl’s like-for-like 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.” – Phil Dorrell, Retail Remedy

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“A good trading performance for UK and international, particularly over Christmas, against tough comparatives and management states that it is trading in line with profit expectations.

“This is a useful tick in the box for Tesco, generating good growth despite a more disciplined and less promotionally fuelled trading approach year on year. It offers some hope that the business might be able to deliver sustained volume growth.

“However, we only see sustained upside if there is greater visibility that this can be translated into improved margins and we think this is still likely some way off.” – James Collins, Stifel

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“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.

“Free cash generation will be critical to the Tesco investment thesis for the foreseeable future as the hoped for, and it should be reasonable to anticipate the self-improvement programme at the operational level translates into stronger cash generation and corresponding de-leveraging.

“Net cash flow should also be boosted by the continued constraint of capital expenditure.

“While a bit of a slog it has to be said we do applaud the steady and controlled way chief executive Dave Lewis has delivered self-improvement.

“All in all, we have been surprised and disappointed by the extent to which Tesco’s shares have performed in recent months; an over-reaction to the short-term market share data to our minds as technical matters aside there have been no changes to underlying financial estimates.” – Clive Black, Shore Capital

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“Last year’s Christmas was the first time we saw the first glimpse of Dave’s new customer approach 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% like-for-likes on top of last year’s -0.3% like-for-likes. Success upon success, without mad vouchering, sticking to the new recipe means the it is working.

“The improvement in total sales growth is significantly above that suggested by Kantar, which reported sales growth of -2.7% in its latest 12 week data.

“General merchandise and clothing are singled out as showing strong growth”

Bruno Monteyne, Bernstein

“General merchandise and clothing are singled out as showing strong growth, after their recent slowdown in Kantar’s apparel data.

“UK like-for-like sales turning positive over Christmas is a great result for Tesco and combined with the strong performance in its international business suggests that the company is well on the way to recovery.” – Bruno Monteyne, Bernstein

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“Even against expectations that have likely risen over the last week, Tesco’s trading statement can hardly fail to impress. UK like-for-likes were ahead of expectations – nicely so in the third quarter and dramatically so in the Christmas period.

“Transaction numbers and volume growth were strong, suggesting that customers are responding very positively to the work that continues to be done to improve pricing, service and availability.

“Although the UK market continues to face a number of significant challenges – not least the growth of discounters and deflation – today’s statement supports us in our more positive outlook.

Although the UK is the main sentiment driver for Tesco, it was also able to provide positive news internationally – notably on Ireland and Thailand.

“Ireland has to some extent been a lead indicator for UK performance – so the strong recovery carries some weight.

“Thailand is Tesco’s most valuable international business, so its record market share and strong transaction growth is heartening.

“Although this is an encouraging statement from a sales perspective, we are conscious that the UK market remains competitive, deflation is unlikely to dissipate quickly and Tesco has more work to do.” – James Anstead, Barclays