ii view: Tesco has best day ever

Wholesaler Booker and Ireland underpin sales. But with a change in the CEO due, where next for investors?

Trading update for the 19 weeks to 4th January 2020 (Q3 and Christmas period)

• Like-for-like (LFL) sales for the UK, Ireland and Booker up 0.4%
• UK LFL sales down 0.2% - Ireland up 2% - Booker up 4.1%
• Central Europe LFL down 10.3% - Asia down 1.6%
• Group LFL down 0.9% 

Chief executive Dave Lewis said:

"In a subdued UK market we performed well, delivering our fifth consecutive Christmas of growth.  

In our Centenary year, our customer proposition was compelling, our product offering very competitive and thanks to the outstanding contribution of our colleagues, our operational performance was the best of the last six years.  As a result, this Christmas we had the biggest ever day of UK food sales in our history."

ii round-up:

Tesco (LSE:TSCO) employs around 450,000 people in over 6,800 shops in both the UK, Ireland and overseas. 

Around 80 million shopping trips are made to its stores every week. 

The group is the UK’s market leading grocer with a market share of 27%, comfortably ahead of second place rival Sainsbury's (LSE:SBRY) at just over 15%. 

In early 2017 it merged with wholesaling business Booker. Overseas, it has outlets across Central Europe and Asia.

It recently stopped offering new mortgages to customers, selling its book of outstanding loans to Lloyds Banking Group (LSE:LLOY). 

For a round-up of this latest trading update, please click here. 

ii view:

Having restructured Tesco since 2014 following an accounting scandal, chief executive Dave Lewis will soon be replaced by former Walgreens Boots Alliance executive Ken Murphy. Under Mr Lewis, Tesco's once vast product ranges have been pared down to aid buying power and competitiveness with the discounters. 

Its expansion overseas has also been reversed. Having withdrawn from China, Central European operations are being restructured and strategic options for its businesses in Thailand and Malaysia are now under review. The relatively recent merger with wholesaler Booker looks to be proving a success. Latest trading saw sales up over 4%. 

For investors, a near 25% gain in the share price over the last five years arguably marks some success for the outgoing boss. A forward price/earnings (PE) ratio below the three-year average, although in line with the 10-year average, offers some enticement, with a 50%-plus hike in the half-year dividend appearing to underline confidence in the outlook. In a tough industry, Tesco is highly thought of and regularly referred to as the most attractive stock in the supermarkets sector. 

Positives

• UK, Ireland and Booker sales beat forecasts
• Half-year cost savings of £1.6 billion, ahead of £1.5 billion full year target
• Partnering with Carrefour (EURONEXT:CA) to identify supply opportunities

Negatives

• UK only same store sales fell by 0.2%
• Industry competition is intense - both Aldi and Lidl continue to open new stores
• Same store sales for Central Europe and Asia fell 10.3% and 1.6% respectively

The average rating of stock market analysts:

Buy