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Tesco's 'troubles' are simply blips: while Tesco's current performance is undoubtedly strong, there have been dips in the past 18 months, so what's in store for the future?

Tesco's figures last week were exemplary and blocked many analysts' jabs. UK trading is showing renewed form (current like-for-likes are now above 4%), and early vibes from the US are good. I'd like to look at how much progress Tesco has made in the past 10 years and whether such growth be maintained.

Starting in the UK, it has become noticeable to analysts who have been covering Tesco for a while that dips in form usually prove to be temporary. Tesco is never far from being top dog for performance relative to its peers. In the past 18 months Tesco has reported two disappointing like-for-like periods (if anything in positive territory can be considered "disappointing" given the high original sales densities). It "missed" healthy eating, and Sainsbury's and Waitrose stole a march as customers strove to look after themselves and be more ethically correct. But that oversight was soon put right.

Promotionally, Tesco got caught on the hop by Morrisons last Christmas. But the 4% will be ahead of the industry average like-for-likes, and few retailers will b e able to show similar growth this reporting season.

UK margins were slightly up on last year's and there's no reason to believe they won't be the same this year, too. Tesco has seen food price inflation before and come through the other side unscathed.

Overseas, most eyes were on Tesco's comments on the US, although the "rest of the world" performance was in fact strong and probably deserved more plaudits. Sir Terry waxed more lyrically than expected on the US, presumably stung by the comments of certain analysts who had suggested that project was below plan, prior to the figures.

Not a bit of it--the numbers, apparently, look great and the whole Fresh & Easy experience is exceeding expectations so far. Elsewhere, China and Japan look set for lift-off, but it is the performance of the more established Tesco countries, such as Thailand, South Korea and Hungary, that make us confident forecasts for the next few years look very underpinned.

Tesco has been foot perfect in delivering market expectations for many years now. Food price inflation will not necessarily help in the short term, but with so many strings to its bow, and arguably the two most important in terms of sentiment the UK and the US, going well, we expect more smiles from the industry bellwether.

Jonathan Pritchard is a partner at Oriel Securities
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Title Annotation:SECOND OPINION; Tesco PLC
Author:Pritchard, Jonathan
Date:Apr 26, 2008
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