4 October 2023
If you are covering Tesco’s interim results, please see the following comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Tesco has produced a nice set of numbers in its latest financial update, and the market has reacted very well to its upping of guidance and confidence in the second half of the year.
“The supermarket giant has navigated this high inflationary period very well, given the cost of living crisis, increases to the minimum wage and energy prices. They have delivered impressive pricing while still positioning themselves as on the side of the consumer. So while sales growth has dropped off a little in the second quarter of the year, things could have been a lot worse given the environment it is operating in.
“Tesco won’t want to make a big play on the profits it is making given the political sensitivities of this, but reading between the lines it has clearly down well to drive its operating margin up. Retail is famously a high volume, low margin business, so to up your margins while keeping volumes consistent is very positive for Tesco.
“What happens next though will be interesting to watch. Inflation is moderating but this does not mean prices are falling. The way inflation is spoken about will result in many consumers expecting prices to fall, rather than them just not to go up by as much. Tesco is going to have a tricky job on its hands if expectations and reality is vastly different. However, in the here and now, Tesco is delivering and the market is liking what it sees.”
