Tesco - Results ahoy
12 April 2017
More from Tesco (and Easter tomorrow!) as we approach the golden egg season, but for today - it's the Tesco results and they're certainly improving on the face of it.
However more exceptionals whittle the profits down to near zero once again, SFO fines, insurance charges and what not mean the overall take isn't as good as to the just over £1bn profits announced by the company (up 30%) today.
But the rest of the metrics are good, notable highlights:
- Group sales up 4.3%
- UK up like for like for the first time since 2009
- Margin up to 2.3% - target of 3.5-4% for 19-20.
- Net debt down to £3.7bn
Intriguingly Dave Lewis says they are ahead of where they needed to be at this stage. That's great but they should consider stores and their wider display of standards, these look to be worsening rather than remaining steady in the market.
Payqwiq is used once every 5 seconds too which is impressive for the payment app / processor and one that looks good for the potential of the Tesco / Booker deal.
No further news on that in the release; just that they continue to work with the CMA. It will interesting to see what they make of the deal and should they demand the disposal of some stores - how does that make the deal work?
It looks like nothing will materially change, as Tesco refer to the 'out of home' food market as their target.
Q4 in Ireland was -1.3% but they've embarked on another price offensive versus discount. Tesco Ireland match the discounters on a number of prices with the natural impact on like for likes. Volumes were strong though, showing that the price cuts had the impact that was expected.
Promotions remain a target for Tesco; not fitting in their new model of low prices and simpler ranges - 24% less multibuys in the year, but no sign of them abandoning them altogether like Sainsbury's - why would you?
Replenishment moved from nights to days is spun a little as 'more colleagues around' for customers in 195 stores. However if they're running around filling up on a late night / morning (often morning fill is also happening due to deliveries) then it's not necessarily better for customers with cages all over......
It makes sense to cut nights in quieter stores as it's a cost to operate nights, however there is a tipping point where the economics don't work out, given that customers are around and case rates are poorer. Unclear where that tipping point is, but Sainsbury's scaled their night shifts back based on takings / trade.
However if a store also picked for online, they kept their night shift as obviously, online customers can't have lots missing from their shop as the shelves haven't been filled.
As we've seen on non food, there is a notable step down in standards and it's whether customers will tolerate this, particularly if it translates to lower availability.
Positive overall for Tesco; their progress is noted and Dave Lewis and co have done a remarkable job from what they inherited - which was a disaster in store quite frankly.
Money was spent and the kitchen sink was thrown in to get the balance sheet sorted, but still today, further exceptionals and pension charges reduce the overall profit number once more.
They will be hoping this is the end for those particular issues, and they can begin to grow in a sustainable way. It does show how much poor management can knock a business back, particularly in retail.
Costs of ventures around Giraffe, Euphorium, Harris & Hoole are huge, plus the expensive refits that ultimately yielded nothing long term. Truly remarkable.
He's done a good job has Dave Lewis; their improvements are demonstrable. However as they get to a mid point of sorts, they have to remember that whilst expensive, better shop keeping has played a major part in getting them to where they are now.
It would be unwise to chase the pennies but lose the pounds and allow the shops to go backwards....
From the Grocery Insight newsletter archive, first sent to subscribers on 12 April 2017. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.