Tesco’s poor Christmas trading update wiped £5bn off the company’s stock market value yesterday in what is being dubbed a ‘Black Thursday’ for retail.
The grocer reported a 2.3% slowdown in like-for-like sales in the six weeks to January 7 in its worst trading statement for 20 years. Here are some of the City’s verdicts.
Clive Black, Shore Capital
“Tesco’s trading update has confirmed what secondary market share data has suggested and that is disappointing trading in the key UK retail division indeed it is somewhat worse than expected. We are cutting our forecasts more substantially to reflect substantial increase in investment to improve the UK performance and broader business. We see this investment involving price but also labour and other overhead costs to improve the productivity of Tesco UK. We have had our resolve tested on Shore Capital’s positive stance towards Tesco stock in recent periods and today we have to capitulate. Whilst the update is a major disappointment, the downgrades reflect not just poor recent trading but a build up of matters, particularly in the core chain.”
Philip Dorgan, Panmure Gordon
“The UK performance is poor, especially when it is considered that the comparable period was also down, reflecting the impact of last year’s snow. We know that improvement will take time to come through, but there doesn’t appear to be any sign of any forward momentum. With every management change, it becomes less easy to be sure that the right people are in the right jobs, because track records become shorter and shorter.”
Nick Coulter, Nomura
“Tesco traded through Christmas with a lower level of promotions, and against an increased level of competitor promotions and coupons, thus losing traction across the peak period. We believe Tesco will set out its stall to do what is necessary to sustain best-in-class operating metrics and returns. Specifically we believe Tesco will seek to improve store standards (more shop floor staff enabling higher retail standards), reassess its recently lowered promotional mix and consider further price initiatives.”
Marc Hazelton, Barclays Capital
“Tesco’s UK business simply need to get back on the front foot. It could try to do this over a period of several years, but management knows what it needs to do and thinks it is better just to get on with it. The chief executive thinks it should undertake all the necessary work over a short period of time rather than spreading it out. While this is probably a sensible move, it has highlighted the depths of the problems in the core UK business and will raise concerns about the stability of the whole UK market.”
Jonathan Pritchard, Oriel Securities
“It appears that moving the dial on the ‘price’ element of the value for money equation simply doesn’t work. It is clear that operating margins will fall materially in the UK, and it would be a brave man who suggested that they rebuilt themselves rapidly in the medium term.”
Christopher Hogbin, Bernstein Research
“Since the primary focus of Tesco’s actions is not price, the impact of the repositioning may not be felt immediately by competitors. However, over time as customers notice the broader changes to Tesco’s shopping experience the pressure will build.”
Caroline Gulliver, Espirito Santo
“It is possible that Tesco’s problems can be solved by the one-off, accelerated c.£400m investment and management may be able to avoid the pain of multiple profit warnings. However our industry analysis suggests it is too soon to rule out the risk of a damaging price war.