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Unveiling its Christmas sales figures, Tesco “underlined its supremacy over the high street”, says City AM. Same store sales were up 5.7% and total domestic sales (including any new floor space) up an impressive 10.1%.
That’s good news, but it is worrying when firms with such an “impeccable track record” add warnings to their reports, says Tom Stevenson in The Daily Telegraph. Tesco has noted that its costs are rising at a “horrendous” rate of over 3.5%, but sales prices are falling at around 1.6%. This means it has to generate sales growth of at least 5.1% just to keep profits constant.
That doesn’t bode well for retailing: as one analyst told Harry Wallop, also in The Daily Telegraph, “if Tesco is finding it tough, then God help everybody else”.
But this doesn’t explain why Tesco shares have been so static for so long, says Stevenson. As the market turned its back on growth stocks last year in favour of income, its shares underperformed the FTSE 100 by more 15%, with the result that, despite having trebled its earnings in three years, and looking at double-digit earnings growth, it is valued the same as struggling Dixon’s owner DSG.
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Annunziata Rees-Mogg
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