13th Jun 2022 14:50
(Alliance News) - All eyes will be on the inflationary environment when Tesco PLC reports how it has fared at the start of its financial year.
The supermarket chain will issue first quarter results on Friday. Shares were down 2.0% at 245.20 pence in London on Monday, and the stock has fallen 15% since the start of 2022.
Back in April, Tesco said it saw annual profit rise following a "strong performance" during the 12 months to February 26, leading to the launch of a new GBP750 million share buyback.
However, the grocer warned of a hit to profit in the year ahead amid inflationary pressures and normalising consumer behaviour post-pandemic.
Since then, the most recent survey from data analytics firm Kantar has shown UK supermarket sales have weakened amid soaring grocery inflation.
According to the latest Kantar survey, UK grocery sales declined 4.4% to GBP29.91 billion in the 12 weeks to May 15 from GBP31.30 billion a year before.
During the 12 weeks, Tesco sales fell 3.1% yearly to GBP8.20 billion. Its market share, however, climbed to 27.4% from 27.0%.
"This is the seventeenth month in a row Britain's largest supermarket has gained share, its longest streak since 2007," Kantar said.
J Sainsbury PLC sales dropped 6.7% year-on-year to GBP4.42 billion, with its share of the UK grocery market fading to 14.8% from 15.1%. Online only grocer Ocado Group PLC saw sales fall 8.0% to GBP517 million, with its market share edging down to 1.7% from 1.8%.
Broker Shore Capital expects Tesco's first quarter trading update to show it has continued to outperform peers.
"The key questions, however, is whether amidst a very strong current inflationary surge for essentials in the western world, the firm can maintain is guidance for FY23 and so can we retain our financial forecasts," said Shore.
Hargreaves Lansdown said Tesco's pricing focus should help it weather the tough conditions amid the UK's cost-of-living crisis.
However, this comes at a cost, said Hargreaves analyst Matt Britzman.
"Inflation was called out as a challenge in the full-year results just gone, albeit one that was being mitigated with improved efficiencies," said Britzman. "We'll be looking out for any commentary on whether the group can keep prices low, mitigate inflation and keep margins intact."
By Lucy Heming; lucyheming@alliancenews.com
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