Tesco: Encouraging Gains Over Christmas
No-moat Tesco TSCO reported its fiscal 2025 third-quarter and Christmas trading update, which included retail sales being up 3.1%. Sales in the UK and the Republic of Ireland were up 3.9% and 4.4%, respectively, and we were pleased to see market share gains in both regions.
From a channel perspective, online sales were strong, with the UK and the Republic of Ireland reporting 10.8% and 17.1% growth, respectively. Booker sales declined 1.3% due to the weakness in the fast food and tobacco markets, partially offset by strength in catering, up 2.8%. Improving customer sentiment drove growth in Central Europe to the tune of 3.5%, and we expect this momentum to continue into the next fiscal year.
Management maintained its fiscal guidance of £2.9 billion in adjusted operating profit. With this, we maintain our £3.16 per share fair value estimate.
Key Morningstar Metrics for Tesco TSCO
• Fair Value Estimate: 316p• Morningstar Rating: 2 stars• Morningstar Economic Moat Rating: None• Morningstar Uncertainty Rating: Medium
Tesco Stock Price vs Morningstar Fair Value Estimate
Source: Morningstar Direct
Marks & Spencer: Food Growth Drives Results
We maintain our £3.42 fair value estimate after no-moat Marks & Spencer MKS reported its trading statement for the 13 weeks to Dec. 28, which met our expectations. While results were decent, sales growth undershot the market’s high expectations, causing the stock to drop approximately 6% upon results. We view current shares as fairly valued.
Total UK and Republic of Ireland like-for-like sales were up 6.4% in the quarter, driven by strength in the food segment, with like-for-like sales growth of 8.9%. We were pleased to see double-digit growth in core food categories, including meat, produce, and dairy. Weak in-store sales weighed on the clothing segment, with sales up 1.0%. However, we are encouraged by online sales growth of 11.7%, with the channel representing 34.0% of sales in the period, up from 31.0% a year ago. International sales were down 2.8%, due to challenging conditions in India.
Key Morningstar Metrics for Marks & Spencer MKS
• Fair Value Estimate: 342p• Morningstar Rating: 2 stars• Morningstar Economic Moat Rating: None• Morningstar Uncertainty Rating: Medium
Marks & Spencer Stock Price vs Morningstar Fair Value Estimate
Source: Morningstar Direct
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