Tesco’s first-quarter trading statement contained few shocks and surprises, bar the exit from the bulk alcohol and tobacco markets in Thailand.
Although that put a material dent in Asian sales through the period, it represents the exit from the loss-making activity. So, booze and fags aside, Tesco reported more good, steady fundamental progress, to our minds.
Most demonstrably, that progress is evident in its core UK market, where volume growth persists and headline like-for-like sales are positive against now tougher comparatives.
UK trade is being driven by a more simple and straightforward proposition reflecting a lot of heavy lifting in the supply chain, logistics network and store operations.
At the shelf edge, that translates into better availability, sharper prices, an easier shop and enhanced service.
As such, Tesco chief executive Dave Lewis highlights 10m more transactions year-on-year.
A little extra required
Whilst we applaud the work to date, to sustain ongoing progress, Tesco UK may yet have to demonstrate a little more entrepreneurship, more innovation and more creativity.
“Tesco’s progress in the first quarter underscores our broadly more positive feel on UK grocery superstores”
Speaking of the wider UK market, Lewis acknowledges the challenges.
Consumer confidence in May dipped, but Lewis seems in a much better position to face the fall in living standards that many UK households are seeking to cope with and the relative price position versus the “German discount” chains, as he labelled them.
Indeed, Tesco’s progress in the first quarter underscores our broadly more positive feel on UK grocery superstores, noting the still positive volumes, sound mix and seemingly manageable inflation set against structurally lower operating costs and conservative cash management.
No mention today of Booker, which the Comedy Management Association (CMA) is currently consulting upon.
Lord knows what it will come up with, but do not be surprised if something suitably wacky.
Internationally, Tesco still faces more headwinds than not, especially in Poland, where supermarket Biedronka recently reported 8% like-for-like sales growth.
That said, we welcome the good progress in the Republic of Ireland with very strong fresh food sales and the better mood music from the Czech Republic and Slovakia.
International remains a work in progress, however, as we sense management is now implementing many of the successful elements of the UK plan, especially simplification, cost reduction and managed proposition improvement.
In good shape
All in all, Tesco is in demonstrably better shape, most importantly in its home market.
Whilst this is so, much remains to be done and the story from an investment perspective remains one for the patient.
This is reflected in a muted market response noting £3bn-plus of net debt, £7.5bn of operating lease exposure and a £5bn pension deficit.
The Tesco train though has been brought back onto the railway lines and has left the station to a better place, for which Dave Lewis and co deserve enormous credit.
Where will its journey take investors?