What's going on?
Tesco reported strong half-year earnings on Wednesday morning, as the UK’s biggest grocery chain finally put down the cleaning supplies and got back to doing what it does best.
What does this mean?
Grocery chains outdid themselves last year, primarily because their stores were some of the few that stayed open when the world flipped upside down. But things are only getting better for Tesco: the company’s revenue for the first half of this year came in 1% higher than the same period in 2020. That might not sound like much, but the first six months of last year – which saw a boom in sales as shoppers stockpiled toilet paper – was always going to be tough to beat. Tesco reckons it can keep this momentum going too: it upped its profit outlook for the rest of the year, and investors sent its stock up 6%.
Why should I care?
The bigger picture: Tesco’s saving on soap suds.
Rising costs are nothing new for companies these days, but Tesco is especially at risk: Britain’s grocery market is so competitive that passing those costs on to customers in the form of higher prices might encourage them to switch to a cheaper rival. Still, at least the expenses that came with the pandemic – not least all those cleaning bills – are tapering off, and Tesco just said it thinks it can cut another $1.3 billion in costs over the next three years.
For markets: PE firms want to take grocers to the checkout.
Private equity (PE) firms have agreed to buy two of Tesco’s biggest rivals – Asda and Morrisons – this year, and Tesco’s worried it might be next on the menu. That might be why it just announced it’ll start buying $680 million worth of its own stock this month (tweet this). That’ll reduce the number of shares available and push their price up, which should put off any PE firms in the market for a bargain.