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CONSUMER STAPLES: Tesco (Baa3/BBB- Pos/BBB-) 1H (6m to August) earnings call

CONSUMER STAPLES
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  • Repeats positive governance approach to BS (is hanging below target 2.3x-2.8x at net 2.1x); "when you have higher interest rates like we have at the moment, being at the lower-end or slightly below is no bad thing for us and managing your finance costs."
  • Tesco Finest (it's own premium-branded range) saw volume growth of +15% in the UK while the re-launch of the Finest Dine-In range (ready-made meals) saw +18% growth - impressive numbers. It is making the most of that by launching 190 new products under it. Adds switching gains from all competitors into it.
  • On Macro; says dine-in growth reflects "tendency for consumers to dine-in more" but pares back any concerns later saying "everything we're seeing in the business is relatively positive in terms of volume, momentum and trading up to finest".
  • We wouldn't read into the retail FCF guidance being left unch (at £1.4-1.8b) despite a profit upgrade - the £1.26b in 1H was more than mgmt expected and its quiet clear based on comments it expects a beat but is protecting itself from WC swings.
  • Note the upgraded £1.9b in retail EBIT does imply a flat 2H yoy (from the 10% growth YTD) - it was asked about that, avoided a clear answer but again sounds like it is setting itself up for a beat. It delivered £260m in savings this year and still says "well on-track" to deliver FY savings of £500m.
  • Lot of chat on retail media and insights platform after it flagged strong growth in it. The offering leverages its store, online and Clubcard data to give suppliers and brands insights and targeted advertising. We don't see it as a mover for fundamentals - i.e. see its success tied to the core strength in retail, not the other way around.
  • We don't expect supply this year with front maturity in May (£400m £ line). It does have room to lever-up but comments indicative it won't in near term. Even if it chooses to, it is holding onto ~£1b more cash then it normally does which it can draw down on.

RV thoughts unch from this morning. Numbers from before here.

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  • Repeats positive governance approach to BS (is hanging below target 2.3x-2.8x at net 2.1x); "when you have higher interest rates like we have at the moment, being at the lower-end or slightly below is no bad thing for us and managing your finance costs."
  • Tesco Finest (it's own premium-branded range) saw volume growth of +15% in the UK while the re-launch of the Finest Dine-In range (ready-made meals) saw +18% growth - impressive numbers. It is making the most of that by launching 190 new products under it. Adds switching gains from all competitors into it.
  • On Macro; says dine-in growth reflects "tendency for consumers to dine-in more" but pares back any concerns later saying "everything we're seeing in the business is relatively positive in terms of volume, momentum and trading up to finest".
  • We wouldn't read into the retail FCF guidance being left unch (at £1.4-1.8b) despite a profit upgrade - the £1.26b in 1H was more than mgmt expected and its quiet clear based on comments it expects a beat but is protecting itself from WC swings.
  • Note the upgraded £1.9b in retail EBIT does imply a flat 2H yoy (from the 10% growth YTD) - it was asked about that, avoided a clear answer but again sounds like it is setting itself up for a beat. It delivered £260m in savings this year and still says "well on-track" to deliver FY savings of £500m.
  • Lot of chat on retail media and insights platform after it flagged strong growth in it. The offering leverages its store, online and Clubcard data to give suppliers and brands insights and targeted advertising. We don't see it as a mover for fundamentals - i.e. see its success tied to the core strength in retail, not the other way around.
  • We don't expect supply this year with front maturity in May (£400m £ line). It does have room to lever-up but comments indicative it won't in near term. Even if it chooses to, it is holding onto ~£1b more cash then it normally does which it can draw down on.

RV thoughts unch from this morning. Numbers from before here.