Tesco (TSCOLN; Baa3, BBB-, BBB-; S) Prelim. FY23/24 Earnings (ending Feb)

Headline numbers in-line. Strong food sales, flat clothing sales & weak Tobacco sales. Strong BS, guiding to more capex. Equity pay-outs increasing by +25%, bank sale to offset cash use this year. €29's trade well tight, £lines don't screen cheap either.

• Results: In-line with adj. sales of £61.5b (+7.2% yoy) & retail FCF £2.06b (-3.3%). Note headline figures exclude expected bank sale (credit cards, loans & savings) to Barclays (exp. close in 2H) - that amounts to £710m of the £1.5b in revenue that was stripped out (leaving £811m for Tesco Bank).

• Macro: It is reporting Food volume growth particularly in the 2nd half - though it says this was higher than market (sees a +28bp gain in UK market share to 27.6%). Home & Clothing in the UK disappointed - it makes up 7% of sales now and fell -3.4% - it says excluding some one-off impacts sales were flat which it says (for clothing) was still faster than market. Online holding flat at 13% of total UK sales. Booker, the wholesale provider, reported weak Tobacco sales (LFL -4.3%) which it says reflects "ongoing market volume contraction" - uncertain/not reporting how much of this is due to a skew towards combustibles.
• BS: Net debt fell from £10.5b to £9.8b (that includes £7.6b in lease liabilities) - leverage is at 2.2* vs. 2.6* (incl. pension deficit 2.4* from 2.7*). No issues on liquidity (£3.2b cash & £2.5b revolver).
• Guidance; Capex to rise from £1.3b to £1.4. Expects Retail FCF of £1.4-1.8b, cash inflow of £1b from bank sale to Barclays (£700m) and bank dividends (£250m). Buyback this year of £750m increased to £1b over next year, dividend of £778m increased to £864m - total returns to equity holders bumped from £1.5b to £1.9b