Tesco boss Dave Lewis should be congratulated on progress, but his job isn’t even half done yet, says Shore Capital analyst Clive Black.

Dave Lewis has done a remarkably good job in stabilising Tesco.

That progress is evident in today’s interim results, in which the group delivered positive like-for-like sales across the board and a welcome little beat to profitability, as far as operating profits are concerned.

That achievement reflects broad, deep and fundamental change to the culture and operation of the business.

Such has been the progress, Lewis is now able to reconsider the priorities of the group, placing the more remedial targets in the past two years in the locker and looking forward to a future where profitability sustainably builds.

Margin targets

Indeed, to our surprise, Lewis has set out an aspiration for Tesco at a group level to deliver trading margins of 3.5% to 4% by the end of the 2019/20 financial year. At Shore Capital, our expectation is 3.7%.

That aspiration appears well-grounded to our minds, noting the prevailing trading environment and the implications of the movements in sterling for cost of goods for all retailers.

As such, an intelligent and evermore capable business is looking to the future with more confidence, based upon strengthening capabilities.

We also feel that Tesco’s new priorities, based around six themes, are broadly good news for the sector as it indicates an expectation of rationality.


In stating all of this, there is a need for a sense of perspective.

Tesco has fallen a long way from the days of 6.2% UK margins – and it should be noted that the grocer’s group margin does not directly read across to the UK – so there is much more to do to grow from the rebased level.

Good progress has been made reducing net debt, assisted by disposals that also simplify the business and negate the need to spend good money after bad.

The progress with building the freehold mix when it comes to its property portfolio is a good deal more pedestrian, it should be said, but perhaps the headline figure was the ballooning pension deficit of £5.9bn.

“Tesco is in much better shape and now ready to enter another more virtuous and potentially rewarding period for all of its stakeholders”

Finance boss Alan Stewart has done a lot of good work on Tesco’s pension responsibilities and he gave a good account of the need to apply Corporal Jones’s mentality and “don’t panic”.

While not irrelevant for sure, the accounting treatment should neither spook Tesco shareholders nor pensioners. The group has moved already, it has a plan and it is manageable, in our view.

So, Tesco is in much better shape and now ready to enter another more virtuous and potentially rewarding period for all of its stakeholders.

Reaching this position has been difficult, embracing many very challenging decisions.

In that respect, we feel it only right to congratulate Lewis and his teams for the achievements to date, while remembering that the job isn’t even half done yet.