Company Reports

Tesco, the largest grocery retailer in the United Kingdom in terms of sales and store network, has successfully completed an ambitious turnaround. It has had one of the worst times in its history over the past decade, including an accounting controversy in 2014 and a subsequent decline in profits and growth owing to the advent of discounters in the UK food retail business.

No-moat Tesco reported fiscal half-year 2025 results with top-line results driven by volume growth as the inflationary environment normalized. Retail like-for-like sales were up 2.9%, with UK sales up 4.0%, and Ireland sales up 4.7%. Booker sales were down 1.9%, with the decline in tobacco and Best Food Logistics volumes offsetting strength in catering. From a channel perspective, all formats were up, led by digital growth of 9.3%. Within the UK, market share rose 62 basis points year over year to 27.8% with strong performance particularly from large stores. Ireland saw market share gains as well, increasing 88 basis points year over year to 25.3%. We were also pleased to see Central Europe sales up 0.6%, signaling a gradual improvement in consumer sentiment.

Tesco reported a first-quarter trading update that included a 3.4% increase in retail sales. Sales in the United Kingdom and the Republic of Ireland were up 4.6% and 4.4%, respectively, with Booker down 1.3%. Catering sales rose by 2.2%, and retail sales were up 1%. From a channel perspective, digital channel sales increased by 8.9%, driven by volume growth. Tesco achieved strong market share gains in the UK, up 52 basis points year on year to 27.6%, supported by positive switching gains (customers switching from other retailers to Tesco), and in Ireland, up 59 basis points in the first quarter. Booker's performance was not as bad as the headline growth number suggests (overall sales declined 1.3%), given strong performance last year and the continued tobacco market decline.

Tesco announced preliminary fiscal 2024 results that included retail sales up 10.9%. Sales in the UK and the Republic of Ireland were up 7.7% and 6.8%, respectively, with Booker up 5.4%. Catering sales were up 10.2%, and retail sales were up 11%. From a channel perspective, large stores continued to perform strongly, with sales growing 8.2% in the period versus 4.5% sales growth for convenience stores and 10.4% sales growth for the digital channel, which was around 13% of UK sales. Tesco said it achieved strong market share gains in the UK, up 28 basis points year on year to 27.6%, and in Ireland, up 73 basis points to 23.6% at the end of the year.

Tesco, the largest grocery retailer in the United Kingdom in terms of sales and store network, has successfully completed an ambitious turnaround. It has had one of the worst times in its history over the past decade, including an accounting controversy in 2014 and a subsequent decline in profits and growth owing to the advent of discounters in the U.K. food retail business.

Tesco announced its fiscal 2024 third-quarter and Christmas trading update that included retail sales up 6.4%. Sales in the U.K. and Republic of Ireland were up 7.5% and 7.3% respectively with Booker up 4%. Catering sales were up 3.5% and retail sales were up 4.1%. From a channel perspective, large stores continued to perform well with sales growing 7.5% in the period versus 4.5% sales growth for convenience stores and 11.5% sales growth for the digital channel, around 13% of U.K. sales. Tesco said it made strong market share gains in the U.K., up 15 basis points to 27.9%, and in Ireland, up 73 basis points to 24.5%, in the four weeks leading to Christmas.

Tesco announced fiscal 2024 interim results that included retail like-for-like sales up 7.8%. U.K. and Ireland sales were up 8.4% (U.K. up 8.7%, Ireland up 6.9%, and Booker up 7.5%). Booker remains a strong contributor, with retail and catering driving performance (up 14.2% and 11.6%, respectively) and tobacco the main detractor (down 5.9%). From a channel perspective, large stores continue to outperform, growing 9.3% in the first half versus 5.1% sales growth for convenience stores and 10% sales growth for the digital channel (13% of U.K. sales), with Tesco once again commenting on online market share gains of 71 basis points, close to 37.5%. Profit was up 17.2%, implying a margin of 4.4%, similar to prepandemic levels, driven by cost savings, volume growth, and a strong contribution by Booker.

Tesco announced a first-quarter trading update with retail like-for-like sales up 8.2%, with the U.K. and Ireland sales up 8.8% (U.K. up 9%, Republic of Ireland up 7.3%, and Booker up 8.4%). Booker remains a strong contributor with like-for-like sales growth at 8.4%, which with the U.K. (up 9%) were the standout performers for the group. From a channel perspective large stores outperformed, growing 9.9% in the quarter versus 5.9% sales growth for convenience stores and 8.2% sales growth for the digital channel, with Tesco commenting on online market share gains (up 75 basis points to 37.5%). Management confirmed fiscal 2024 guidance calling for a "broadly flat level of retail-adjusted operating profit and retail free cash flow within the target range of GBP 1.4 billion to GBP 1.8 billion" versus close to GBP 1.8 billion in our model. Although we don't expect to alter our GBX 298 per-share fair value estimate, we reiterate that no-moat Tesco is one of the best-positioned grocers in our Europe coverage. At the current share price and despite a 14% share price appreciation year to date, Tesco's expected returns look attractive versus peers. We attribute this to a 7% cash return to shareholders through a regular dividend (about a 4% dividend yield in our estimates) and a stepped-up share buyback program. Tesco also has dominant offline (27% market share), online (37.5% market share), and food-service (largest player) positions in the core U.K. market, and potential upside from ad opportunities in the digital platform and automation-driven online fulfillment efficiencies.

Tesco, the largest grocery retailer in the United Kingdom in terms of sales and store network, has successfully completed an ambitious turnaround. It has seen one of the worst times in its history over the past decade, including an accounting controversy in 2014 and a subsequent decline in profits and growth owing to the advent of discounters in the U.K. food retail business.

Tesco announced fiscal 2023 results with retail sales up 5.1% on a one-year like-for-like basis, with U.K. and Ireland sales up 4.7% (U.K. up 3.3%, Republic of Ireland up 3.3%, and Booker up 12%). Booker remains a strong contributor, with like-for-like sales growth at 12% (partially reflecting the benefit of lapping lockdown impacts), which, along with Central Europe (up 10.4%), were the standout performers for the group. On profitability, Tesco's retail business reported GBP 2.487 billion, and the bank's GBP 143 million in adjusted operating profit was broadly in line with our estimates. More importantly, free cash flow came ahead of our estimates at GBP 2.133 billion versus about GBP 1.8 billion in our model, driven by strong working capital and efficiencies. Management introduced guidance for fiscal 2024 calling for "broadly flat level of retail adjusted operating profit and retail free cash flow within target range of GBP 1.4 billion to GBP 1.8 billion" versus close to GBP 1.8 billion in our model. Although we don't expect to materially alter our GBX 298 per share fair value estimate, we reiterate that Tesco is one of the best-positioned grocers in our Europe coverage. At the current share price and despite a 19% share price appreciation year to date, Tesco's expected returns look attractive versus peers. We attribute this to a 7% cash return to shareholders through a regular dividend (about 4% fiscal 2023 dividend yield, in our estimates) and a stepped-up share-buyback program (GBP 750 million over the next 12 months or around 3% of market cap on top of GBP 1 billion share buyback program since October 2021). Tesco also has dominant offline (27% market share), online (35% market share), and food-service (largest player) positions in the core U.K. market, and potential upside from ad opportunities in the digital platform and automation-driven online fulfillment efficiencies.

Tesco announced third-quarter results for fiscal 2023 with sales up 6.4% on a one-year like-for-like basis (up 5.7% in the third quarter and 7.9% during Christmas), with U.K. and Ireland sales up 5.3%. Management reiterated guidance for the year. Booker remains a strong contributor, with like-for-like sales growth at 10% (partially reflecting the benefit of lapping lockdown impacts), which along with Central Europe (up 10.9%) were the standout performers for the group. This is a strong set of numbers and in-line with J Sainsbury's performance for the same period reported a day before (Sainsbury's grocery sales up 5.6%). Tesco maintained retail profit guidance of GBP 2.4 billion-GBP 2.5 billion (versus GBP 2.58 billion in our model) for the year.

Tesco announced first-half results for fiscal 2023 that included sales of GBP 32.5 billion, up 6.7% on a one-year like-for-like basis, with the retail business as well as United Kingdom and Republic of Ireland up 11.5% on a three-year like-for-like basis. Including lower margins in the first half (80 basis points lower) and more conservative guidance for the year, this is a mixed set of numbers despite a healthy-looking top-line performance. Booker remains a strong contributor, with three-year like-for-like sales growth at 21% (versus 19.6% in the first quarter) reflecting the benefit of lapping lockdown impacts.

Tesco, the largest grocery retailer in the United Kingdom in terms of sales and store network, has successfully completed an ambitious turnaround. It has seen one of the worst times in its history over the past decade, including an accounting controversy in 2014 and a subsequent decline in profits and growth owing to the advent of discounters in the U.K. food retail business.

Tesco, the largest grocery retailer in the United Kingdom in terms of sales and store network, has successfully completed an ambitious turnaround. It has seen one of the worst times in its history over the past decade, including an accounting controversy in 2014 and a subsequent decline in profits and growth owing to the advent of discounters in the U.K. food retail business.

Tesco announced a first-quarter trading update for fiscal 2023 with sales of GBP 13.572 billion, up 2% on a one-year like-for-like basis and up 9.9% on a three-year like-for-like basis. This is a good set of numbers reflecting robust performance across channels (large stores down 0.7%, convenience up 6.2% and online down 14.5% versus up 3.9%, up 2.1% and up 55% on a three-year basis respectively) and regions (the U.K. down 1.5%, Booker up 19.4%, Central Europe up 9%) given the uncertain backdrop and strong past performance. Booker was a strong contributor, with three-year like-for-like sales growth at 19.6% and catering's one-year like-for-like growth at 57.4%, reflecting the benefit of lapping lockdown impacts. Tesco reiterated retail profit guidance of GBP 2.4 billion-GBP 2.6 billion (versus GBP 2.58 billion in our model and GBP 2.663 billion for company-compiled consensus), reflecting "a challenging market environment." Tesco said it sees some early indications of changing customer behavior as a result of the inflationary environment with customers facing unprecedented increases in the cost of living. Although we don't expect to materially alter our GBX 273 fair value estimate for Tesco, we reiterate it is one of the best-positioned grocers in our coverage. At the current share price, with about 7% cash return to shareholders through a regular dividend (more than 4% fiscal 2022 dividend yield in our estimates) and recent stepped-up share buyback program (GBP 750 million over the next 12 months or 2.8% of market cap), dominant offline (27% market share), online (35% market share) and food-service (largest-player) position in the core U.K. market as well as potential upside from ad opportunities in its digital platform and automation-driven online fulfillment efficiencies, Tesco's expected returns look attractive versus peers.

Tesco announced fiscal 2022 results with sales of GBP 61.3 billion, up 6%, and EBIT at GBP 2.825 billion, up 58%; a strong set of numbers reflecting resilient performance (in-store, online, food, nonfood). Total coronavirus costs were GBP 220 million in fiscal 2022 versus GBP 892 million in fiscal 2021, with Tesco expecting about GBP 80 million of these to remain in fiscal 2023. Booker was also a strong contributor, with retail's two-year like-for-like sales at 11.9% and catering's one-year LFL at 56%. Retail operating profit in the U.K. and ROI grew robustly by 34.9% due to lower COVID-19 costs, stronger nonfood margin mix and operating efficiencies that offset inflationary pressures, with similar contributions for Central Europe (profit up 35.5%). Tesco Bank profits rebounded strongly as expected (GBP 175 million in fiscal 2022 versus negative GBP 175 million last year), with Tesco guiding for profitability of GBP 120 million-GBP 160 million in fiscal 2023 (versus GBP 121 million in our model). Tesco also provided retail profit guidance of GBP 2.4 billion-GBP 2.6 billion (versus GBP 2.58 billion in our model and GBP 2.81 billion for company-compiled consensus), reflecting "significant uncertainties in the external environment." Although we don't expect to materially alter our GBX 273 fair value estimate for Tesco, we reiterate it is one of the best-positioned grocers in our coverage. On the current share price, with about 7% cash return to shareholders through a regular dividend (about 4% fiscal 2022 dividend yield in our estimates) and recently announced stepped-up share buyback program (GBP 750 million over the next 12 months or 2.8% of market cap), dominant offline (27% market share), online (35% market share) and food-service (largest player) position in the core U.K. market as well as potential upside from ad opportunities in its digital platform and automation-driven online fulfillment efficiencies, Tesco's expected returns look attractive versus peers.

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict.

Tesco reported third-quarter 2022 and Christmas trading updates with like-for-like sales growth up 0.2% in the United Kingdom (up 0.3% in the Christmas period and 7.5% on a two-year basis), higher than company-compiled consensus of down 0.2%. This is a strong set of numbers reflecting resilient third-quarter performance in large stores (up 2.4%) and convenience (up 2.7%) with online lagging (down 12.2% for the quarter, up 58.7% on a two-year basis) as expected. Booker was also a strong contributor, with retail's and catering's two-year like-for-like growth at 19.5% and 8.8%, respectively, despite the omicron impact. For the year, Tesco now expects profitability of GBP 160 million-200 million (versus about GBP 120 million before) for the bank. More importantly, Tesco raised retail profit guidance for a second time this year to "slightly above GBP 2.6 billion" from GBP 2.5 billion-2.6 billion, versus GBP 2.54 billion in our model. Although we don't expect to materially alter our GBX 273 fair value estimate for Tesco, accounting mainly for higher profit guidance (both in the bank and retail businesses), we reiterate that Tesco is one of the best-positioned grocers in our coverage.

Tesco announced first-half 2022 results with sales of GBP 30.4 billion, up 5.9% and EBIT at GBP 1.46 billion, up 40.6%; a strong set of numbers reflecting resilient second-quarter performance in large stores (up 6.9%), convenience (down 1.7% from down 8.2% in the first quarter), food (up 0.7% versus down 2.1% in Q1 due to the stockpiling impact) and clothing (up 35.9% versus 52.1% in the first quarter). Booker was also a strong contributor, with retail's two-year LFL at 19.4% and catering's one-year LFL at 54.4% (positive impact from acquisition of Best Food Logistics). Retail operating profit in the U.K. and ROI grew robustly by 16.5% due to lower coronavirus costs, stronger nonfood margin mix and operating efficiencies that offset inflationary pressures, with similar contributions for Central Europe (profit up 18.6%). Tesco Bank surprised on the upside, with Tesco now expecting profitability of at least GBP 120 million in fiscal 2022 (versus GBP 85 million in our model). More importantly, Tesco raised retail profit guidance to GBP 2.5 billion-2.6 billion from about GBP 2.3 billion before, versus GBP 2.54 billion in our model, which is higher than company-compiled consensus of GBP 2.47 billion. Although we don't expect to materially alter our GBX 273 fair value estimate for Tesco, accounting mainly for better-than-expected bank profitability, we reiterate Tesco is one of the best-positioned grocers in our coverage. On the current share price, with over 6% cash return to shareholders through a regular dividend (about 3.8% fiscal 2022 dividend yield in our estimates) and just announced ongoing share buyback program (GBP 500 million or 2.5% of market cap), dominant offline (27% market share), online (35% market share) and food service (largest player) position in the core U.K. market as well as potential upside from ad opportunities in its digital platform and automation-driven online fulfillment efficiencies, Tesco expected returns to look attractive versus peers.

Tesco, the U.K.’s largest grocer in terms of sales and store network has successfully completed an ambitious turnaround. Over the last decade, the firm has been through one of the worst periods in its history, including an accounting scandal in 2014 and a subsequent drop in margins and growth due to the emergence of discounters in the U.K. food retail industry.