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CONSUMER STAPLES: Tesco (TSCOLN; Baa3/BBB- Pos/BBB-) 1H (6m to August) results

CONSUMER STAPLES
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UK's largest grocer has given firm results - as expected given the strong gains in monthly reported UK market share data. It holds a 27.8% share (+62bps yoy), well north of Sainsbury at #2 on a 15.2% (+40bps). It's translated to margin growth but it should sit shy of sector leader - Aussie Woolworths - and global operator - Ahold Delhaize. New Finnish entry Kesko (asset light franchiser) will also sit north of Tesco. Leverage continues to hold below its target - mgmt has said in the past that is reflective of a conservative approach in the current environment - we expect a eventual S&P upgrade and it is priced. Read-through worth noting for other names is the weak central-Europe non-food retailing conditions and continued HSD declines in tobacco. On RV no firm views in €, £ continues to screen more value including on the £28/30s.

  • 1H sales at £31.5b (+4% yoy), adj. EBIT £1.65b (+16%) at a 5.2% margin (+55bps). Consensus was at 4.4%.
  • UK grocery (66% of group sales) was +4.7% (LFL), Ireland (4%) +4.7%, Central Europe (6%) +0.6%, wholesaler booker (13%) -1.9% and Fuel (10%) -2.8%.
  • On UK; volume driven growth. Online +9.3% with participation as % of total UK sales now at 13.5% (+60bps).
  • On Booker; decline driven by Tobacco (-7.3%) while core retail (+0.6%) and core catering (+1.7%) edged out growth. Best food logistics was weak -6.6%.
  • On CE; growth reflects "a gradual recovery in customer sentiment in the region" but worth noting food sales was +0.9% while non-food sales -1.7%. Its pointing to market-wide availability challenges in clothing and wetter weather for latter.
  • FY guidance revised up to £2.9b of retail adj. EBIT (pev. at least £2.8b, consensus there already) and retail FCF guidance left unch at £1.4-£1.8b (consensus at midpoint/£1.6b).
  • gross/net debt is at £12.8b/£9.7b (half of that in leases) leaving it 2.8x/2.1x levered. That is below mgmt stated target of net 2.3-2.8x. S&P wanted leverage at net 2.5x (~tesco reported net 2.1x) for an upgrade.
  • £575m in dividends this half and £575m in buybacks. The £1b in buybacks to April 2025 target (funded by Tesco bank sale) is left unch in size.
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UK's largest grocer has given firm results - as expected given the strong gains in monthly reported UK market share data. It holds a 27.8% share (+62bps yoy), well north of Sainsbury at #2 on a 15.2% (+40bps). It's translated to margin growth but it should sit shy of sector leader - Aussie Woolworths - and global operator - Ahold Delhaize. New Finnish entry Kesko (asset light franchiser) will also sit north of Tesco. Leverage continues to hold below its target - mgmt has said in the past that is reflective of a conservative approach in the current environment - we expect a eventual S&P upgrade and it is priced. Read-through worth noting for other names is the weak central-Europe non-food retailing conditions and continued HSD declines in tobacco. On RV no firm views in €, £ continues to screen more value including on the £28/30s.

  • 1H sales at £31.5b (+4% yoy), adj. EBIT £1.65b (+16%) at a 5.2% margin (+55bps). Consensus was at 4.4%.
  • UK grocery (66% of group sales) was +4.7% (LFL), Ireland (4%) +4.7%, Central Europe (6%) +0.6%, wholesaler booker (13%) -1.9% and Fuel (10%) -2.8%.
  • On UK; volume driven growth. Online +9.3% with participation as % of total UK sales now at 13.5% (+60bps).
  • On Booker; decline driven by Tobacco (-7.3%) while core retail (+0.6%) and core catering (+1.7%) edged out growth. Best food logistics was weak -6.6%.
  • On CE; growth reflects "a gradual recovery in customer sentiment in the region" but worth noting food sales was +0.9% while non-food sales -1.7%. Its pointing to market-wide availability challenges in clothing and wetter weather for latter.
  • FY guidance revised up to £2.9b of retail adj. EBIT (pev. at least £2.8b, consensus there already) and retail FCF guidance left unch at £1.4-£1.8b (consensus at midpoint/£1.6b).
  • gross/net debt is at £12.8b/£9.7b (half of that in leases) leaving it 2.8x/2.1x levered. That is below mgmt stated target of net 2.3-2.8x. S&P wanted leverage at net 2.5x (~tesco reported net 2.1x) for an upgrade.
  • £575m in dividends this half and £575m in buybacks. The £1b in buybacks to April 2025 target (funded by Tesco bank sale) is left unch in size.