Tesco’s shareholders are ‘on the warpath’
The beleaguered retailer today (June 26) revealed the fall in its like-for-like sales had slowed to 1.3% in the first quarter of its new financial year, compared with a 3.4% drop in 2014.
The results led Begbies Traynor partner Julie Palmer to conclude: “It is hardly surprising that Tesco’s shareholders are on the warpath and have set their sights on Lewis’s bonus scheme, which at five times his salary has been deemed as excessive, particularly in light of this quarter’s disappointing results.”
The latest results underline the challenge facing Lewis with sales performance “still firmly in negative territory”.
After surprising the market in April with its first sales volume hike in more than four years, the first quarter results show that while the fall in UK like-for-like sales has slowed, the supermarket still faces a lengthy recovery, said Palmer.
‘Locked in a vicious battle’
“Tesco, like its large scale peers, is still locked in a vicious battle to win back ground lost to the discounters as grocery deflation continues to plague the sector,” she added.
While the turnaround strategy has focused on building stronger foundations – by enhancing the in-store customer experience and readjusting its value positioning – the lack of large asset disposals meant the decisive upturn in group performance had yet to arrive, said the Begbies Traynor analyst.
But analysts Planet Retail and Shore Capital both took a more upbeat view. Planet Retail said the figures revealed the progress made towards the retailer’s UK recovery.
“This morning’s domestic like-for-like numbers showed modest improvement on Q4 [fourth quarter], suggesting Dave Lewis's recovery programme is seemingly beginning to bear fruit,” said its analyst David Gray.
‘Step in the right direction’
The results were better than those achieved by some rivals, particularly Asda, and there were signs of a return to volume sales. “Considering the headwinds of flat or falling food prices, the UK figures are a step in the right direction – or, at the very least, still better than this time last year.”
But performance in Asia remained “the real headache”, added Gray.
While there was no significant announcement on asset sales, Planet Retail predicted Dunnhumby and Tesco Mobile would be sold soon.
Shore Capital also welcomed the results, which it described as “a little ahead of expectations”. Rising like-for-like sales were driven by improvements across all formats and categories, particularly fresh foods where sales may be higher, said analysts Clive Black and Darren Shirley.
While applauding the “calm and order” Lewis and his team had brought to Tesco in a short period of time, there remained much work to do, they said.
Tesco’s scale and supply chain opportunities should enable Britain’s biggest retailer to achieve margins within a range of 3–4%, according to the analysts, though what and when remained unclear.
Shore Capital repeated its ‘hold’ recommendation on the retailer’s stock.
The retailer’s next statement is expected on October 7.
