- Retail sales up 6.4% in 19 weeks to January 6th
- Best Christmas ever for Tesco, led by promotional activity
- Trading has been better than expected, meaning full year guidance has been upgraded. Retail adjusted operating profit of c.£2.75bn now expected, above previous guidance range of £2.6bn to £2.7bn
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“Tesco has managed what Sainsburys couldn’t quite muster, which is a profit upgrade for the full year. The tills were chiming away over Christmas, and the slightly conservative previous estimates, coupled with lower exposure to General Merchandise, means there’s room for expectations to be inflated. Investors will be especially pleased to hear of the £2bn in retail free cash flow due to pump round the business this year, helping to underpin the group’s ability to invest in staying competitive, and helping sustain the not insubstantial prospective dividend yield.
Of course, there are no rainbows without rain. The wider pivot to value offerings, including in Europe where Tesco has a substantial footprint, could keep a lid on progress in the face of a consumer slowdown and volume weakness. The strong value proposition means Tesco is exposed to consumers who are feeling the pinch economically, so keeping them shopping with Tesco and at the right price points, is a big task.
The other side of the coin is that it’s increasingly clear that consumers are choosing to treat themselves at home. A restaurant might be too much of a stretch, but that translates into being willing to spend a few extra pounds on a special meal in, and Tesco can certainly taste that difference.”
