Today’s profit warning, indicating that February’s year-end profits will come in at £1.4bn, 25% lower than analysts’ expectations, had better be the final shock from Tesco…
Whilst the City will be relieved that no further scandals were revealed, this below-expectation profit guidance has to mean that analysts are still not reading Dave Lewis well enough, and will hopefully result in an over-reaction in terms of the share price…
In other words, the stock market will probably mark the shares down more than is warranted, just-in-case…
There is hopefully an element of ‘kitchen-sinking’ in the 2014-15 results in that we have to assume that all write-offs have been factored in, which, coupled with investments in price, availability and other improvements in its customer offer, lead us to expect that all future announcements will be defensible, transparent but above all, conservative….
We are obviously seeing only the surface impact of the changes being undergone in Tesco, as Dave Lewis’ new team revisits plans and strategies, implementing a new commercial approach that will underpin stronger long-term relationships with its suppliers to ensure that revenue recognition is transparent and appropriate, all in the shadow of an SFO investigation….
What it means for NAMs
• All commercial income will be redefined, quantified and where possible, retrospective
• All forecasts will be conservative, and ideally tied to clear KPI measures
• …However, in order to avoid missing out on unexpected demand, Tesco will expect a rapid response to sales surges...
The future conversation will be about demonstrable cost & value, as a base requirement.
In return, suppliers should insist on 100% compliance, and fair-share dealings, shock-proofed…
Whilst the City will be relieved that no further scandals were revealed, this below-expectation profit guidance has to mean that analysts are still not reading Dave Lewis well enough, and will hopefully result in an over-reaction in terms of the share price…
In other words, the stock market will probably mark the shares down more than is warranted, just-in-case…
There is hopefully an element of ‘kitchen-sinking’ in the 2014-15 results in that we have to assume that all write-offs have been factored in, which, coupled with investments in price, availability and other improvements in its customer offer, lead us to expect that all future announcements will be defensible, transparent but above all, conservative….
We are obviously seeing only the surface impact of the changes being undergone in Tesco, as Dave Lewis’ new team revisits plans and strategies, implementing a new commercial approach that will underpin stronger long-term relationships with its suppliers to ensure that revenue recognition is transparent and appropriate, all in the shadow of an SFO investigation….
What it means for NAMs
• All commercial income will be redefined, quantified and where possible, retrospective
• All forecasts will be conservative, and ideally tied to clear KPI measures
• …However, in order to avoid missing out on unexpected demand, Tesco will expect a rapid response to sales surges...
The future conversation will be about demonstrable cost & value, as a base requirement.
In return, suppliers should insist on 100% compliance, and fair-share dealings, shock-proofed…
More on 'Tesco- the end of the beginning for a great retailer' here
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