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Strategic Preview: Q1. March 2013 - May 2013. 3 June 2013. DAVID GRAY. Research Analyst. Strategic Preview: Tesco Q1.

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Strategic Preview: Q1

March 2013 - May 2013

3 June 2013


Research Analyst

Strategic Preview: Tesco Q1

“We expect Tesco’s domestic business to deliver a satisfactory performance in Q1 with comparative sales broadly flat, although there is the possibility of a slight decline due to subdued general merchandise sales. We also note Tesco’s large store refurbishments have slowed to a mere trickle as the retailer works out how to integrate recently acquired businesses such as Giraffe and Harris+Hoole. While this is sensible, we note Tesco has much work to do with an estate of more than 3,000 stores in the UK – much of which is tired and in need of a refresh. Nevertheless, range improvement is continuing at pace with further progress made on the mid-tier ‘Tesco’ overhaul in the quarter.”

“In international, we anticipate sales will remain subdued, particularly in Central Europe where Tesco is facing tough competition from the discounters. Although we expect Asia to perform better than Europe, headwinds in Korea and China are continuing to come through. We expect Malaysia and particularly Thailand to deliver strong performances offsetting some of the slower trading seen in Korea and China. India remains off the radar for now as Tesco waits to see how new rules on Foreign Direct Investment (FDI) bed down before committing further funds.”

“Despite a relatively uninspiring performance during the quarter, we note Tesco continues to have long term growth opportunities. It is aggressively targeting the convenience store sector in Thailand, the UK and South Korea - a strategy which could lead to wider margins as well as helping resolve the company’s dependence on hypermarket formats , albeit this is more of an issue for the UK.”

  • Analyst Comment:


Research Analyst

Expectations for the Quarter

UK: Q1 Strategic Changes

Global: Q1 Strategic Changes


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Strategic Preview: Tesco Q1

  • 1. Expectations for the Quarter

Actual Like-for-Like Sales

Projected Like-for-Like Sales

  • We anticipate comparative sales at Tesco’s domestic business will remain broadly flat, with the possibility of a slight decline during Q1 2013, dampened by subdued general merchandise sales. We also expect the store refurbishment programme to continue at a slower pace given that Tesco needs to evaluate how best to integrate recently acquired businesses such as Giraffe and Harris+Hoole. The first Giraffe restaurant set to open adjacent to a Tesco store will launch at Tesco Extra Watford in the summer.

  • Sales in international will remain subdued given the challenging trading environment across all regions from Europe to Asia. CEE in particular is likely to see a decline in sales as Tesco faces increasing competition from the discounters such as Jerónimo Martins-owned Biedronkaand Schwarz Group - all of which are outperforming Tesco in the region.

  • In Asia, sales continue to be dampened by restrictions on shop opening hours in Korea alongside a more cautious approach to expansion in China. That said, Thailand and Malaysia are growing well, particularly the former which we expect to deliver a standout performance yet again on the back of a rapid store opening programme weighted towards smaller formats.

  • In the US, we anticipate Tesco is unlikely to have further information to add beyond that revealed at full-year. We continue to be supportive of Tesco’s exit from the US although note the company may find it difficult to find a buyer for the whole of the chain. Potential piecemeal buyers include AldiSüd,Trader Joe’s (AldiNord) or the dollar stores such as Dollar General or Family Dollar.

  • An uninspiring quarter expected, with significant headwinds continuing to come through, particularly in CEE.

  • 1. Expectations for the Quarter