16th Jun 2023 11:21
(Alliance News) - Tesco PLC remains in good shape compared to its peers, according to analysts and investors, after posting a quarterly revenue rise on reduced inflationary pressures.
For the three months ended May 27, the Welwyn Garden City, England-based supermarket chain reported revenue of GBP15.17 billion, up 9.7% from GBP13.83 billion year-on-year. This measure excludes both VAT and fuel, but includes Tesco Bank.
In the UK & Ireland alone, sales rose 9.4% to GBP13.79 billion from GBP12.60 billion. Large store sales were particularly strong, up 9.9% on a like-for-like basis, while online sales rose 8.2%.
During the quarter, Tesco further increased its 'Aldi Price Match' promotion to around 700 products, and recorded a "strong response" to its latest 'Low Everyday Prices' price-lock, now applicable to over 1,000 products. Its 'Clubcard Prices' discount were also extended, and are now available on over 8,000 lines.
As Edison's Neil Shah emphasised, Tesco's ability to draw in customers "trading down from premium retailers", while still retaining its base through Aldi Pricematch and Clubcard Prices, has led to a strong retention of market share at 27%.
Other segments also performed well over the quarter.
Booker sales increased 8.1% to GBP2.28 billion from GBP2.11 billion a year prior, while Tesco Bank sales improved 14% to GBP334 million, from GBP261 million a year prior. Both made "meaningful contributions" to overall growth, said RBC Brewin Dolphin's John Moore.
Tesco on Friday attributed the uplift in Booker sales to "significant growth" across both retail and catering, up 6.3% and 11% respectively on a like-for-like basis. Bank sales, meanwhile, were down due to new customers in both lending and insurance, and higher credit card spending.
The retailer has seen early signs of price rises starting to slow, which could be of benefit to customers.
"It may also help reduce some of the recent political pressure on the sector as the finger was pointed at the supermarkets as one of the culprits behind the soaring cost of a weekly shop," said AJ Bell's Russ Mould.
Chief Executive Ken Murphy told investors he was cognisant of the fact that Tesco's clientele continues to face "significant cost-of-living pressures". He said the retailer would "keep working tirelessly to ensure customers receive the best possible value".
Yet despite its strong sales performance, the supermarket retained its profit forecasts for the year.
Tesco expects retail free cash flow within its GBP1.4 billion to GBP1.8 billion target range. This would at best represent a 16% fall from GBP2.13 billion in financial 2023. Retail adjusted operating profit guidance was also unchanged, and is expected to be "broadly flat" after falling 6.1% to GBP2.49 billion from GBP2.65 billion in financial 2023.
"Perhaps supermarkets have been a bit sluggish in passing on falling wholesale costs, with inflation still the main driver behind Tesco's sales growth. In other words, it is not seeing growing volumes and that helps explain why the company is not upgrading profit forecasts despite the strong sales performance," said Mould.
Tesco's shares were trading 1.2% lower at 261.41 pence each in London on Friday morning.
By Holly Beveridge, Alliance News reporter
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