Tesco recovers from horsemeat ‘body blow’: City
Tesco UK was performing broadly in-line with its rivals Asda and Morrisons, after recovering from “the body blow to its trade caused by the horsemeat contamination”, said Shore Capital analysts Darren Shirley and Clive Black.
“With the horsemeat hiatus now firmly behind it, we see some signs that Tesco UK is pressing on with its self-improvement plan,” they added.
While the improvement plan was intended to be a three-to-four year programme, they predicted it would continue indefinitely in response to fast-moving market trends, such as online retail.
‘Deep-discounters and premium-players’
“Deep-discounters and premium-players are winning share of spend while convenience and online eat into the lot of traditional superstores and hypermarkets,” said Shirley and Black. “Add in a touch of broader malaise in the consumer economy and one can easily see why superstore margins have been under pressure over the last year or two.”
Tesco’s rival Asda was grinding out a “steady performance” and Morrisons was showing signs of improvement against favourable comparatives, they said.
Sainsbury was still out-performing the market but less consistently and perhaps by a narrower margin, said Black and Shirley.
Shore Capital detected from store visits and press announcements that Tesco was stepping up its activity levels. A crucial factor was providing confidence to the market that it can sustain a 5.2% domestic trading margin, which was a key metric to support the shares.
Tesco’s modernised Truro superstore drew praise for its new low level fixtures for fruit and vegetables and updated meat, fish and bakery counters. “We have to say that if the majority of Tesco’s 450 superstores were set up like Truro, then we would be more confident about the future prospects of the core chain,” said Black and Shirley.
Online retailing
They also noted a strengthening of online retailing, with a number of senior appointments in this field. The retailer was at last starting to get its feet under the table and make an impact.
But the retail giant’s success will ultimately depend on how shoppers responded to its store refurbishments, range developments and marketing campaigns that Tesco UK applies. “After much talking, we are encouraged that the business is now more in a doing mode,” said Black and Shirley.
Shore Capital issued ‘buy’ advice on Tesco stock.
Meanwhile, the Asda Income Tracker indicated cautious grounds for optimism. Andy Clarke, president and ceo of Asda, wrote: “Although customers don’t seem to be any better off than they were this time last year, a positive rise in retail sales indicates a return to cautious spending.”
It was unlikely that consumer confidence would be fully restored until there was a significant improvement in family finances, he added. “But the good news is that the cash in our customers’ pockets appears to be stabilising. With the recent heatwave and two British sporting victories the bag consumer spirits are high, hopefully leading to a brighter outlook for July.”
Lessons to be learned from the horsemeat crisis will be one of the subjects under discussion at Food Manufacture’s Food Safety conference, to be staged at the National Motor Cycle Museum, near Birmingham on Thursday October 17.
Details of the conference and an early bird discounted ticket price are available here.
