Tesco has continued to reward shareholders over the year with the share price up 23% since the start of 2019. There were plenty of positives to takeaway from the recent capital markets day. We summarise the key points below:
Delivering on all key objectives: Cost, Cash and customers
£45bn sales annual sales – 7% of sales online
Margins expanding to 3.5p to 4p on every £1 sold
Investment grade balance sheet - 3x to 2.5x Debt/EBITDAR
Cash generative business: £1.97bn from its operations
Strong dividend: 50% pay-out ratio + returning excess cash to shareholders
Loyal customer base: 49m weekly transactions –19m UK households on loyalty programme
We are also encouraged by Tesco's proactive asset management to enhance their estate and their commitment to omnichannel retailing, which we believe is the future model of grocery retail. This includes:
Repurposing 150k sq.ft. store space into clothing sales = >10% margins
The capacity of its online business to grow by 35%
Store pick model delivering 99.7% UK coverage on 30k items
Expanding online range to auto-replenishment, subscription and meal solutions
Repurposing up to 2m sq.ft. of store space = third party revenue
£200m cost reduction from Booker + cross-sales opportunity