Tesco's Better-Than-Expected Results

Tesco's Better-Than-Expected Results

over 3 years ago2 mins

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UK grocery chains could do with a break after the last six months, so Tesco – the biggest of them – might’ve been relieved to report half-year earnings that helped its stock initially rise 3% on Wednesday 🛒

What does this mean?

Sales came in 6.6% higher in the last six months than the same time last year. Put that down to Tesco’s UK business, where sales – which benefited from a 69% bump in ecommerce – were almost 9% higher. That matters: the UK makes up 91% of Tesco’s total revenue.

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It’s true that the company’s “operating profit” – the amount it earned before paying interest and tax, and before any one-off adjustments – fell versus a year ago. But it’d already said that might happen in April: the retailer expected to spend an extra $1.1 billion on things like wages and store safety because of the pandemic 🦠 It’s actually only spent $690 million of that so far, and it’s hoping a strong end to the year will bring its annual profit to about the same as last year’s.

Why should I care?

Investors were initially enthusiastic about Tesco’s annual profit forecast, which was higher than analysts were expecting. But it didn’t last long, perhaps because the company admitted the new wave of lockdowns sweeping the UK are keeping things uncertain 🔒 Tesco’s competition might be heating up too: Walmart sold rival grocer Asda for $9 billion last week, and its new private equity buyers plan to invest $1.3 billion into the company over the next three years.

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Retail stocks tend to capture the interest of non-professional and professional investors alike 👀 That might be because there’s more fragmentation and therefore more competition than in almost any other industry, creating investment opportunities aplenty. Take US retailers: the top five have a 20% market share, versus airlines’ 70% and banks’ 40%.

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