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Stabilising Tesco's UK Market Share and Achieving Stable UK Trading Margins Are Key Goals

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Core prompt: Stabilising Tesco's UK market share and achieving stable UK trading margins should be key goals for the retail giant,acco

Stabilising Tesco's UK market share and achieving stable UK trading margins should be key goals for the retail giant,according to City analyst Shore Capital.

Tesco's priority should be stabilising its UK market:Shore Capital

Its analysts Clive Black and Darren Shirley said:"From the achievement of a stable UK,all other things can follow into place;Philip Clarke[Tesco boss]can appoint a UK ceo,the group can increase focus on developing the rest of its portfolio and,most importantly,a new focus on free cash flow[FCF]can possibly be announced and explored."

Commenting ahead of Tesco's management statement–due on Wednesday,December 5–Black and Shirley predicted the stock market would be most interested in the performance of Tesco's core chain,which accounts for about two-thirds of trading profits.

"Like its international peers,the tide of consumer activity has been low in Britain of late with sustained weak consumer confidence,which may augur well for Christmas trade when Tesco has particularly favourable comparatives,"they said.

'All the more penal'

But Black and Shirley warned that low levels of economic activity were"all the more penal"for market leaders–such as Tesco,Dutch retailer Albert Heijn and US giant Wal-Mart.

With UK food volumes remaining sluggish throughout the year,there have been"few tail winds for Tesco UK",they said.Moreover,the market leader was facing a competitor set that is,excluding Morrisons,"on song".

Shore Capital described Tesco's six point improvement plan,introduced by Clarke and his senior management team,as a 36-month programme that the business was 11 months into.The plan covers all categories including ranges,hierarchies and store formats.

While good progress had been in store?with upgrades to key ranges including fresh produce availability,fresh meat merchandising and speciality bread and check-out services?there remains much to be done and with competitors"in generally good shape".

'International food retailers'

The analysts noted how times had changed for international food retailers."Seemingly long gone are the days when core domestic markets delivered sustainable share gains and mid-to-high single digit domestic sales augmented by double-digit annual international advances.

"Rather,the sustained economic recession has led to domestic challenges to market share and often sustained periods of negative like-for-like sales with often low single digit total revenue growth."

Also,international market sales advances were also lower,with business decisions influenced by"strategic re-focusing".This trend was evidenced by Carrefour's exit from South-East Asia and Tesco's withdrawal from Japan.

In the US,Tesco's Fresh&Easy needed to start reporting better momentum"if investor concerns are not to become more vocal"said Black and Shirley."We sense that the market's focus and profile on Fresh&Easy will ease if the UK stabilises and a clear path to breakeven in the USA can be established;big'ifs'though."

Shore Capital maintained its'Hold'recommendation on Tesco stock.

 
 
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