Tesco narrowly beats Q1 forecasts, but analysts stay cautious

4th Jun 2014 09:36

Investors gave a mixed reaction to results from Tesco on Wednesday as a less-than-expected decline in first-quarter like-for-like (LFL) sales failed to stop the shares sinking into the red by mid-morning.UK LFL sales excluding petrol fell by 3.7% in the first three months of Tesco's fiscal year, worse than the 2.9% drop recorded in the fourth quarter, but not as bad as 4% drop that most analysts had pencilled in.The stock raced higher initially at the open, but quickly reversed to fall 1.4% to 293.4p by 09:53.Panmure Gordon Market Commentator David Buik said that despite coming in ahead of forecasts the 3.7% LFL decline "by any standards, represents an unacceptable performance".Meanwhile, Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, said that investors are trying to figure out whether Tesco is "showing glimpses of revival given its turnaround plan, or whether it is past its sell by date".He said that the "ferocity of competition" in the market, as rival grocery chains battle to slash prices and offer better deals, is making the implementation of Tesco's turnaround measures more difficult to achieve."As Tesco continues to try to repair the decline in its market share and reputation, investors are being rewarded with a healthy 5% dividend yield which, whilst attractive in the current interest rate environment, may not be enough of a reward for patience," Hunter said.He said that the market consensus of Tesco as a 'sell' is likely to remain in place for the time being.Similarly, analysts at Oriel Securities said that while there may be the "odd sigh of relief" at the first-quarter figures, "the reality is that this is a weak performance".However, on a more optimistic note, Oriel highlighted Tesco's comments that it is accelerating the speed at which it refits stores which is a "clear positive". The broker said: "It does hold back short-term LFL but for long-term gain."Meanwhile, comments about ongoing price cuts and the company being more competitive than it has been for many years is also a good sign, according to Brewin Dolphin. "This is important because Tesco is often accused of actually being more expensive than its competitors," said Brewin's Retail Analyst Nicla Di Palma.BC