Analysts applaud Dave Lewis’ efforts to turn around Tesco
Tesco posted a 0.6 per cent increase in UK like-for-like sales this morning and analysts have been reacting well to chief executive Dave Lewis' efforts to revive the embattled retailer.
And the market seems to agree with them, with the retailer's share price jumping nine per cent in early morning trading.
Lewis has been managing a two-year turnaround for the retailer after trust in the company collapsed when it overstated its profits two years ago. Discounters Aldi and Lidl have also been applying pressure on price, but today, Tesco set itself an ambitious new target for its operating margin.
Tesco now explicitly targeting 3.5-4% operating margin target.
This is an important step.
Been reluctant in past to guide city on recovery.— Louise Cooper CFA (@Louiseaileen70) October 5, 2016
Himanshu Pal, vice president at Kantar Retail, said the improved like-for-likes at Tesco "has vindicated some of the structural changes" made by Lewis.
"While Tesco continues to lose shopping trips to discounters such as Aldi and Lidl, it has managed to offset the decline by gaining share from other parts of the market, especially Asda," he said.
Hard to judge the Tesco machine until the exceptionals etc are out of the way. Still costs from disposing of the wider secondary ops.
— Steve Dresser (@dresserman) October 5, 2016
John Ibbotson of consultants Retail Vision said: "There’s still a long way to go but Tesco, make no mistake, has started to hit its stride. Its competitors will have cast a nervous eye over these latest results.
Read more: Tesco posts increase in UK like-for-like sales but profit drops 28 per cent
"The slickest thing about Dave Lewis’ approach has been its simplicity: reducing prices to regain competitiveness in the core UK business, rebuilding all-important customer trust and strengthening the balance sheet by selling off non-core operations and stores."
"It’s good to see that the important business of selling groceries is firmly in focus at Tesco HQ and the accounting sideshow has not distracted Dave Lewis from doing an excellent job," said Phil Dorrell, partner at Retail Remedy consultants.
"Our advice? Concentrate on the growth of the business and delivering value to the shareholders. The skeleton will soon be buried."