Tesco: What the analysts say

“Tesco’s update provides a safety net of sorts to the present share price, assuming no further disappointment. However, the business performance has to improve.

“Such progress can be expected to take time to come through, there is a lot of things listed ‘to do’ and doing them will by definition take time. We feel that Tesco could and should have been more bold in its investment in the UK in the near-term.”

- Clive Black, Shore Capital

“These numbers are broadly as expected and, while far from disastrous, have exposed signs of weakness in a business that just a few years ago seemed to be an unstoppable beast.

“Traditionally Tesco was a success because it was an innovator. It knew its customers so well it could establish their wants and needs and come up with ways to fulfil them before other retailers even realised there was an issue. Gradually, as it has become larger and taken on more challenges, this ability has been eroded.

“Clarke has announced some interesting ideas but it will ultimately be the retailer’s understanding of its shoppers’ mentality and how it implements its initiatives which will determine if it regains its former position of strength or continues to see its lead over its rivals eroded.”

- Matt Piner, Conlumino

“This statement should reassure the market that Tesco has a coherent plan for UK recovery.  From what we see in the stores, we think that it has a good chance of success. However, as always, execution is key.

“It is not about Tesco having a magic new format, it is about doing 1,000 things, 1% better. That said, our confidence has grown that our forecast of a profit recovery from FY2014 will prove to be correct.”

-      Philip Dorgan, Panmure Gordon

“Tesco has had its knuckles rapped but it’s clever enough to learn from this. Its focus now is on consolidating and improving its existing portfolio, which even it admits has become pretty shabby of late.

“We expect the recent spate of bad news to be more of a hiccup, not the beginning of a trend.

- Phil Dorrell, Retail Remedy

“Tesco’s results and strategy update confirms its migration from growth at any cost to a more capitally disciplined retailer. For those, like us, worried about the sector’s returns, such a change in direction is very welcome.

The company is undergoing a transition to more disciplined growth; as such future growth levels will be slower but capital efficiency, a key weakness in this sector, should dramatically improve, offering a cash flow focused story as we move forwards. The results may therefore prove an attractive entry point for investors despite the difficult macro backdrop.”

- Matthew Truman, JP Morgan

“Recognising the present supply-demand imbalance and a growing preference for smaller formats, the UK store opening programme will be rebased. We view this development as a clear positive for Tesco and UK grocery.

“We also expect this attitude to capital discipline to be replicated groupwide.”

- Nick Coulter, Nomura