The grocery giant’s store improvement programme and overseas activities would only bear significant fruit in the medium to long term, stated Clive Black of Shore Capital.
He said he was encouraged by the design of Tesco’s flagship Extra store in Watford, which included Harris + Hoole coffee shops; Giraffe family restaurants and a new concept Euphorium Bakery.
However, in a note to investors, he continued: “Whilst we are encouraged by the hullabaloo surrounding Watford, the programme of self-improvement in the UK is no short-term matter to our minds.
‘Will take three to four years’
“We believe that it will take three to four years still before senior management will have meaningfully touched the majority of its stores in the UK … we caution about over-emphasising the importance of Watford.”
Black said the Extra upgrade programme was only set to move into another gear in 2014. And he said Tesco’s newly announced joint venture with Chinese retail outfit China Resource Enterprise Vanguard was promising, but a slow burner, unlikely to break even until 2017/18.
He asserted an improving UK economy would benefit Tesco, which he claimed had been particularly exposed to the UK downturn “compounded by an unusually out-of-touch trading strategy”.
In addition, he said product development, including the recently launched Love Every Mouthful programme and an anticipated relaunch of Tesco’s own-label Finest range over the next few months, was evidence of increased modernisation.
Growth opportunities
Black also foresaw continued growth opportunities for Tesco in Asia.
However, he expressed concern about “the protracted nature of the discussions” to exit its US retail venture Fresh & Easy.
“First, trading losses are set to be sustained for longer than we originally anticipated, a likely feature of the headline interim results to be released in October.
“Secondly, and perhaps more meaningfully, Tesco has yet to announce that it has sold Fresh & Easy to a single buyer with no additional cash costs … The longer that the sales process takes, the less confident we become that Tesco can emerge without further cash costs.”