Tesco First Quarter Trading Statement 2022/23.

[idpickering]

UK: Ongoing support for customers in challenging times; further improvement in market share
Market share growth of +37bps3, outperforming on both value and volume
Overall distribution of Aldi Price Match and Low Everyday Prices products up c.19% YoY
Maintaining largest improvement in quality & value perception of any food retailer in the market vs pre-pandemic
YoY performance impacted by annualisation of lockdown last year, most notably in GM, clothing and online, partially offset by inflation
ROI: Sales ahead of pre-pandemic levels, one-year performance reflects trading over lockdown last year
Market share growth +11bps YoY4; Brand NPS increased by +4 points YoY to 18
Sales decline due to lapping highest level of restrictions, which is partially offset by inflation
Booker: Strong performance, particularly in Catering, reflects benefit of lapping lockdown and underlying business growth
Catering LFL sales increased by +57.4%; added over 13,000 net new customers
Retail LFL sales increased by +2.3%
CE: Growth driven by inflation across all three markets, despite impact of lapping lockdown
Continued market share growth in all three countries, +40bps overall5
Completed sale of 17 malls & one retail park, generating proceeds of c.£200m as announced in April
Bank: Sales up +38.8% largely from acquisition of Tesco Underwriting; recovery in card sales & travel money
Outlook: At this early stage in the year, our guidance ranges for profit and cash remain unchanged


Ken Murphy, Chief Executive:
“Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market. Our material and ongoing investment in the powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices is removing the need for customers to shop elsewhere.

Although difficult to separate from the significant impact of lapping last year’s lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible. ”

https://www.tescoplc.com/news/2022/1q-t ... nt-202223/

Also posted on Company News here; viewtopic.php?p=507800#p507800

I hold Tesco in my HYP, and have been toying with adding more of their shares to my pot?

Ian.

[Itsallaguess]

I hold Tesco in my HYP, and have been toying with adding more of their shares to my pot?

I think I'd struggle to think of a worse UK sector to increase investment exposure to than UK supermarkets at this time, and having just read the results, you'd have to point out what I've missed if you're considering them a good prospect...

Tesco have just said they've not met expectations, and they've also said they're now seeing concrete evidence of changes in customer spending habits, with people basically buying less food due to cost-of-living pressures. Would you expect their current predicament to be a short lived one, or one that's likely to come under sustained and possibly even increasing pressure from this point into the medium and perhaps even longer term?

Then we've got the additional pressure from the Government for sectors and companies to be cutting prices and costs to the UK public even if they were doing well, and I really can't see the broad investment case for UK supermarkets at all, and certainly in terms of income-investment, their forward-yield of around 4.3% would be low enough to make me look elsewhere for improved prospects on both an income and a capital investment case...

Cheers,

Itsallaguess

[idpickering]

I hold Tesco in my HYP, and have been toying with adding more of their shares to my pot?

I think I'd struggle to think of a worse UK sector to increase investment exposure to than UK supermarkets at this time, and having just read the results, you'd have to point out what I've missed if you're considering them a good prospect...

Tesco have just said they've not met expectations, and they've also said they're now seeing concrete evidence of changes in customer spending habits, with people basically buying less food due to cost-of-living pressures. Would you expect their current predicament to be a short lived one, or one that's likely to come under sustained and possibly even increasing pressure from this point into the medium and perhaps even longer term?

Then we've got the additional pressure from the Government for sectors and companies to be cutting prices and costs to the UK public even if they were doing well, and I really can't see the broad investment case for UK supermarkets at all, and certainly in terms of income-investment, their forward-yield of around 4.3% would be low enough to make me look elsewhere for improved prospects on both an income and a capital investment case...

Cheers,

Itsallaguess

Although I do get where you’re coming from thanks, for me I like to buy when there’s blood on the streets so to speak. Either way, each to their own. I suspect the share will be even cheaper shortly? On opening they’re down a mere quarter of a per cent. Either way, I’m thinking longer term than just today.

Ian.

[Dod101]

I have not held any supermarket since about 2014. (I have a note somewhere) Even apart from the recession which may be looming all they are doing at the best of times is taking bites out of each other.

Dod

[idpickering]

I have not held any supermarket since about 2014. (I have a note somewhere) Even apart from the recession which may be looming all they are doing at the best of times is taking bites out of each other.

Dod

Thanks for your input Dod, and words of caution. It’s not a given that I will buy more Tesco, just something I’ve toyed with recently......maybe?......

Ian.

[Itsallaguess]

Even apart from the recession which may be looming all they are doing at the best of times is taking bites out of each other.

Just a quick look at their 20-year yield history is enough to tell me they'd be a completely uninspiring long-term choice for an income-investor -



Source - https://www.dividenddata.co.uk/dividend-yield.py?epic=TSCO

That would be a big 'no thanks' from me, I'm afraid, and that's even before we'd take into account the grim reading in this recent trading statement...

Cheers,

Itsallaguess

[idpickering]

Even apart from the recession which may be looming all they are doing at the best of times is taking bites out of each other.

Just a quick look at their 20-year yield history is enough to tell me they'd be a completely uninspiring long-term choice for an income-investor -



Source - https://www.dividenddata.co.uk/dividend-yield.py?epic=TSCO

That would be a big 'no thanks' from me, I'm afraid, and that's even before we'd take into account the grim reading in this recent trading statement...

Cheers,

Itsallaguess

My thanks to you both for your input, and words of caution. As I said above, it's not a given that I'd buy more TSCO. I get that there are better options elsewhere out there. In the sector I've hedged my bets by holding SBRY too. I do like the added diversification they bring to my HYP, or is it diworsification on my part in action perhaps?

Ian.

[pje16]

It's not all gloom and doom

"In all, Tesco remains the one to beat. Despite a challenging three months amid an increasingly squeezed consumer environment, the share price has still added 8.5% over the last year, as compared to a decline of 1.5% for the wider FTSE100.
Given its dominance in the sector, its ability to fend off competition and with the group showing few signs of easing off the pedal, the market consensus of the shares as a strong buy remains intact."

https://www.ii.co.uk/secure/my-news-fee ... t-ii524324
(login required)

[idpickering]

It's not all gloom and doom

"In all, Tesco remains the one to beat. Despite a challenging three months amid an increasingly squeezed consumer environment, the share price has still added 8.5% over the last year, as compared to a decline of 1.5% for the wider FTSE100.
Given its dominance in the sector, its ability to fend off competition and with the group showing few signs of easing off the pedal, the market consensus of the shares as a strong buy remains intact."

https://www.ii.co.uk/secure/my-news-fee ... t-ii524324
(login required)

Thanks for offering an alternative view on the merits of this share.

Ian.

[MDW1954]

I hold Tesco in my HYP, and have been toying with adding more of their shares to my pot?

I think I'd struggle to think of a worse UK sector to increase investment exposure to than UK supermarkets at this time, and having just read the results, you'd have to point out what I've missed if you're considering them a good prospect...

Tesco have just said they've not met expectations, and they've also said they're now seeing concrete evidence of changes in customer spending habits, with people basically buying less food due to cost-of-living pressures. Would you expect their current predicament to be a short lived one, or one that's likely to come under sustained and possibly even increasing pressure from this point into the medium and perhaps even longer term?

Then we've got the additional pressure from the Government for sectors and companies to be cutting prices and costs to the UK public even if they were doing well, and I really can't see the broad investment case for UK supermarkets at all, and certainly in terms of income-investment, their forward-yield of around 4.3% would be low enough to make me look elsewhere for improved prospects on both an income and a capital investment case...

Cheers,

Itsallaguess

Actually, I would buy Tesco -- and right now, Tesco is sensibly buying Tesco, by accelerating its buyback programme.

If, as you say, IAAG, "Tesco have just said they've not met expectations", then I didn't read the trading statement that way, and don't recall seeing those words or anything like them. Prospective yield of 4.8% is tempting (I think 4.3% is the historic yield), and the results from Booker and Europe were solid. Shares up on the day.

I get what you say about the yield charts that you show, but that's partly why they're cheap.

A decent-ish set of results, in the circumstances, was my view. There's lots of retailers I wouldn't buy, but Tesco isn't one of them.

MDW1954

[idpickering]

Actually, I would buy Tesco -- and right now, Tesco is sensibly buying Tesco, by accelerating its buyback programme.

If, as you say, IAAG, "Tesco have just said they've not met expectations", then I didn't read the trading statement that way, and don't recall seeing those words or anything like them. Prospective yield of 4.8% is tempting (I think 4.3% is the historic yield), and the results from Booker and Europe were solid. Shares up on the day.

I get what you say about the yield charts that you show, but that's partly why they're cheap.

A decent-ish set of results, in the circumstances, was my view. There's lots of retailers I wouldn't buy, but Tesco isn't one of them.

MDW1954

Thanks for your input Malcolm. You articulated my thoughts on this matter better than I could myself tbh.

Regards,

Ian.

[Itsallaguess]

If, as you say, IAAG, "Tesco have just said they've not met expectations", then I didn't read the trading statement that way, and don't recall seeing those words or anything like them.

There's been a first quarter (Q1) trading update this morning from Tesco, the UK's largest supermarket group, and it makes for interesting reading, not for the numbers themselves, but more as a result of a statement from the chief executive.

Let's take a look at what the statement said in terms of the sales figures.

Expectations have been for a drop of 0.5% in sales. In fact, it came out with a decline of 1.5%. So that itself is worse than had been expected.

But, whilst the company says it is very difficult to separate from the significant impact of lapping last year's lockdowns, the company is seeing some early indications of changing customer behaviour as a result of the inflationary environment.

The chief executive is highlighting this because he feels that this is the really big indicator as to future trading. Customers are facing unprecedented increases in the cost of living, according to the statement. And it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible. In other words, try to screw them down in trying to get their prices down, which, of course is even more difficult because they're incurring higher costs as well.

https://www.ig.com/uk/news-and-trade-ideas/tesco-shares--where-next-as-ceo-warns-of-change-in-customer-beha-220617

Cheers,

Itsallaguess

[MDW1954]

I'm sorry, IAAG, but I'm going to disagree with you.

Tesco have not said that they have not met expectations, a (probably freelance) writer for IG Index has said that -- and IG Index proclaims on its mandatory banner that 71% of "investors" using its services (and presumably having read its news reports) lose money. The writer in question will doubtless probably be paid £50-£75 for his troubles, and may be required to write to a tight formula. (I'll leave you to mull over what I mean by that.)

Just this week, I was asked to write similar stuff for one of IG's competitors (where admitedly only 60-ish percent of investors lost money!) Of course, I refused.

If you want to read a more rounded analysis, start here:

https://www.hl.co.uk/shares/share-research/202206/tesco-inflation-starting-to-hit-consumers

But better still, rather than relying on a third-party analysis, read the actual trading statement.

Sorry to sound harsh, but you struck a nerve. Consensus estimates, in my view, are rarely an indicator upon which it is worth placing much reliance.

MDW1954

[Itsallaguess]

Consensus estimates, in my view, are rarely an indicator upon which it is worth placing much reliance.

No problem with anyone taking that view Malcolm, although I do feel that given the strong sector-related pressures that are ahead of us, I think anyone arguing that Tesco might be the pick of the bunch in the supermarket sector might be a bit like arguing over the best-looking dog in the ugly-dog competition...

All I'm suggesting is that perhaps it might be better to argue over the worst looking dog in the better-looking dog competition, maybe...

I continue to believe that there are better places for potential new invested capital at this particular time than Tesco, which is exactly where I came in on this particular thread...

Thanks for trying to flesh your view of things out though, beyond the usual 'it must be good because I already own it' promotion we often see hereabouts!

:O)

Cheers,

Itsallaguess

[MDW1954]

I continue to believe that there are better places for potential new invested capital at this particular time than Tesco, which is exactly where I came in on this particular thread...

Cheers,

Itsallaguess

No issues there. It all depends on portfolio balance and composition. Right now, I'm buying IMB, EPIC, MNG, ULVR, LGEN, and UKCM. TSCO will probably get added to that list, but not immediately. But at least today's results means it is not on the "uninvestable" list, unlike (say) GSK or TATE.

My key point remains: be cautious about third-party "analysis", especially from certain sources.

MDW1954

[tjh290633]

But better still, rather than relying on a third-party analysis, read the actual trading statement.

Agreed. The statement is relatively short. Here is an extract from https://www.investegate.co.uk/tesco-plc ... 00052180P/ :

Outlook: At this early stage in the year, our guidance ranges for profit and cash remain unchanged

Ken Murphy, Chief Executive:

"Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market. Our material and ongoing investment in the powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices is removing the need for customers to shop elsewhere.

Although difficult to separate from the significant impact of lapping last year's lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible."

That analyst must have been looking at something else to come to the conclusions which he did.

TJH

[Itsallaguess]

Outlook: At this early stage in the year, our guidance ranges for profit and cash remain unchanged

Ken Murphy, Chief Executive:

"Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market. Our material and ongoing investment in the powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices is removing the need for customers to shop elsewhere.

Although difficult to separate from the significant impact of lapping last year's lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Customers are facing unprecedented increases in the cost of living and it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible."

https://www.investegate.co.uk/tesco-plc--tsco-/rns/tesco-plc-q1-22-23-trading-statement/202206170700052180P/

That analyst must have been looking at something else to come to the conclusions which he did.

Sorry Terry, but I think you've got the wrong end of the stick - the above outlook statement is forward looking (although again, any talk above of 'outperforming the market' gets me back to the best-looking dog in the ugly-dog competition...), but there are various analysts mentioning that Tesco didn't meet Q1 expectations with their RNS release yesterday, and one half of those like-for-like figures is shown in the Q1 statement linked above -



(Image sourced from the above linked Q1 trading statement)

The 'expected' Q1 sales-decline figure of -0.5% isn't included, but I would like to think we'd all agree that there will have been Q1 UK sales figures that brokers were 'expecting' from Tesco, as with any large UK listed company, and I don't think it's unreasonable to assume that financial analysts have access to the figures as quoted by the news releases yesterday saying that Tesco had not met their Q1 expectations, delivering a decline in UK sales of 1.5% when a decline of only 0.5% was expected...

The fact that Tesco didn't meet expectations with the above Q1 figures have been widely reported by the way, so this isn't a case of a single rogue-analyst coming up with his own story -

Bloomberg - Tesco UK Sales Drop as Cost of Living Weighs on Shoppers -

Tesco Plc said shoppers are buying fewer items and trading down to cheaper own-brand versions of staples in an “incredibly challenging” market hit by the worst inflation in 40 years.

Britain’s biggest supermarket chain reported a greater-than-expected 1.5% decline in comparable UK sales in the first quarter, in fresh evidence of how rising prices are changing shopping behaviour.

https://www.bloomberg.com/news/articles/2022-06-17/tesco-uk-sales-drop-as-cost-of-living-weighs-on-shoppers


Shares Magazine - Tesco warns on inflation and changing shopper behaviour as UK sales slip -

Britain’s biggest grocer Tesco (TSCO) has reported a worse-than-expected drop in first quarter domestic like-for-like sales and warned the market remains ‘incredibly challenging’ with hot inflation starting to alter shoppers’ behaviour,

https://www.sharesmagazine.co.uk/news/shares/tesco-warns-on-inflation-and-changing-shopper-behaviour-as-uk-sales-slip


Yahoo Finance - Tesco sales drop amid ‘unprecedented increases in cost of living’ -

The retailer reported a greater-than-expected 1.5% decline in like-for-like UK sales against strong lockdown trading last year.

https://ph.news.yahoo.com/ftse-100-tesco-sales-drop-cost-of-living-081734974.html


Given the above, I would find it much harder to believe that there were simply no 'Q1 expectation figures' at all, so I hope no-one is seriously suggesting that here, and so given this, and the widely reported story about Tesco 'not meeting Q1 expectations', along with the lack of any expected 'clarification' from Tesco if these 'not met expectations' stories were untrue, then I think it's only fair to conclude that, actually, they are...

Cheers,

Itsallaguess

[simoan]

Consensus estimates, in my view, are rarely an indicator upon which it is worth placing much reliance.

MDW1954

I take your point, but in deciding what the future may look like it's not something you can completely ignore either as the estimates are often based on information provided to those who have direct access to management, unlike us retail punters. To that end, please could you explain how you get a prospective yield for FY23 of 4.8%? That would imply a dividend increase of 10% over FY22. I believe the accuracy of this metric is kind of important for this forum! My own data source (Refinitiv) shows the consensus is not expecting much by way of a rise in the dividend. What data do you have that is better than the consensus dividend estimate?

BTW I found the trading statement hopeless. Sales are vanity, profit is sanity. And not one mention of margins or profits! Other than to state profit outlook is as previously advised, which is for a 13.7% fall in EPS.

All the best, Si

[Itsallaguess]

Consensus estimates, in my view, are rarely an indicator upon which it is worth placing much reliance.

please could you explain how you get a prospective yield for FY23 of 4.8%?

That would imply a dividend increase of 10% over FY22. I believe the accuracy of this metric is kind of important for this forum!

My own data source (Refinitiv) shows the consensus is not expecting much by way of a rise in the dividend. What data do you have that is better than the consensus dividend estimate?

To add another data-point into the forecast-yield discussion, Sharecast are also currently agreeing with your position Si, and suggest a forecast-yield of 4.3% -

https://www.sharecast.com/equity/Tesco-13310

From today's BBC -

Companies must help cut living costs, says new cost of living tsar -

Private companies must "come to the party and help" with rising living costs, Boris Johnson's new cost of living tsar has said.

Asked what areas Mr Buttress would work on, his new bosses at the Cabinet Office highlighted "price locking" campaigns by retailers Asda, Sainsbury's and Boots, where the price of staple items are cut and kept in place for a limited period, as an example of what the private sector is already doing to help.

https://www.bbc.co.uk/news/uk-politics-61842136

Is that level of yield an adequate reward for the strong and risky head-winds facing this sector?

I'm not convinced...

Cheers,

Itsallaguess

[MrFoolish]

But at least today's results means it is not on the "uninvestable" list, unlike (say) GSK or TATE.

MDW1954

Why do you say GSK and TATE are uninvestable?