Tesco's share price is on the rise.
The beleagued supermarket was up four per cent at pixel time, making it the best performing stock on the FTSE 100 so far today.
That's a trend that stretches back the whole week (more or less), with the share price starting at 165.9p on Monday morning and rising as high as 183p today. It's not much considering the wider context, but you know, every little helps.
Clearly over the last six months, the trend is hardly positive, particularly from the point at which its profit overstatement was revealed, but continuing as the situation deteriorated with various management being suspended and the involvement of the Serious Fraud Office.
But on Tuesday Kantar Worldpanel figures showed a slowing in the sales decline at Tesco to 2.7 per cent, the best performance since June. Kantar said this showed “some signs of stablisation for the retailer”.
So is this week's rally a sign that Tesco is benefiting from the Santa rally or is there more to it than that?
Analysts are pretty mixed on the outlook.
Here's Shorecap's Clive Black, referring to Tesco's announcement earlier this week that it was cranking up its customer service ahead of the big Christmas shopping week:
“Dave Lewis & Co., have made a smart move in characterising in detail the customer service proposition that they offer because in this respect it is a clear point of difference versus the discounters, and may also stand them well against the larger store operators, including Sainsbury's for whom we harbour real worries about its current trading momentum and morale.”
And on predictions for Christmas trading:
“The laggards will be the Big Four but maybe it will not be Tesco holding up the rest of the league. While the price and promotion proposition remain to be determined by Dave Lewis, there may be much needed signs of stabilisation from the market leader. We are interested to see if Morrison's can improve momentum against favourable comparatives, this is necessary to prevent further downgrades to our minds; whilst we reiterate the worrylines we have for Sainsbury.”
JPMorgan is rather more negative, not only warning that the profit overstatement could grow by another £174m, but also arguing that it does not have the competitive edge anymore:
“It is often argued that Tesco is a Buy because ‘it has to be a long term winner due to its scale advantage’. However, we believe that scale alone does not guarantee success; it is the effective use of it for the benefit of the customer that supports success.
“The world of retail is full of large companies that have failed. Execution and skills are the factors that lead to success much more than scale, in our view. But in any case, the benefit of scale has already been enjoyed by Tesco (it is in the numbers), it is not an incremental benefit.
“In fact, we can conclude that scale has become an incremental headwind for Tesco as the benefits of scale unwind. After years squeezing suppliers very effectively through volume rebates, as sales fall, these rebates unwind, becoming a headwind.”