Britain’s biggest retailer Tesco enjoyed a happier Christmas than Marks and Spencer, with sales up by nearly 2%, compared with sales down by the same amount at M&S.
Online food sales were up by 18% on the same period last year.
‘Poor trading’
The timing of Teco’s announcement is significant two days ahead of the first anniversary of its announcement of poor trading in its core market.
Shore Capital analysts Clive Black and Darren Shirley said more work needed to be undertaken to revive the retail giant’s flagging fortunes. “We believe that it should be reiterated that ceo Philip Clarke’s plan to re-energise Tesco UK is a three-year one.
“While much work has been undertaken and progress made (such as in-store service levels and fresh food ranging), there remains a lot more to do, particularly in mainstream own-label, non-food and store configurations.”
Black and Shirley said the results revealed “the stabilisation of the UK performance, reflected in a more robust market share performance”.
Also, stabilisation creates the conditions needed for Clarke to relinquish the role of ceo of the core chain and so concentrate on his group role, they added.
‘Progress in steps not leaps’
Tesco had the capability to further cut its capital expenditure, while progress was more likely to be “in steps than leaps”. Investing ahead of depreciation should progressively allow more shareholder-friendly initiatives, such as deleveraging (reducing debt) and underscoring more sustainable dividend flows, said Black and Shirley.
They also highlighted the potential to restart share buy-back that could significantly gain momentum in the medium-term.
Shore Capital repeated its ‘hold’ advice on Tesco stock.
Tesco also announced in its trading statement that Chris Bush had been appointed UK md.
Meanwhile, M&S reported food sales up by 0.3% but sales of general merchandise down by 3.8%.
The grocer’s chief executive Marc Bollard said: “Our food business has performed very well with record sales over the key Christmas trading period.”
But, he added: “Our general merchandise performance is not yet satisfactory but we are confident that the steps being taken by the new management team will address this.”
Black and Shirley concluded: “There is no doubt that this statement is disappointing from a trading perspective, particularly in general merchandising in the UK. As such, following this announcement, we are putting through downgrades to our CPTP [current pre-tax profit] estimates, albeit small ones due to still effective control of the business.”
Shore Capital repeated its ‘buy’ advice on M&S stock.