17th Jun 2022 18:19
(Alliance News) - Tesco PLC's steps to mitigate damage caused by the cost-of-living crisis look to be helping it stand in good stead, even as the UK's largest supermarket chain flagged consumer behaviour was changing due to inflation.
The Welwyn Garden City, Hertfordshire-based firm on Friday backed up its annual profit guidance after first-quarter top-line growth, though sales in its core UK market fell.
Tesco, which has the largest share of the UK market grocery market, said overall sales were just shy of 10% above pre-virus levels. However, it warned on inflation and said it has seen signs that consumer behaviour is changing.
In the first quarter ended May 28, group retail sales amounted to GBP13.57 billion, up 2.0% yearly on a like-for-like basis. Sales were up 9.9% like-for-like on three years earlier, before the onset of the pandemic.
However, in the UK alone, sales fell 1.5% yearly on a like-for-like basis to GBP9.88 billion, but were up 8.1% from pre-virus levels.
Tesco added that it has grown its market share against key grocery rivals after driving investment into value-focused promotional campaigns, such as its Aldi Price Match programme.
Chief Executive Officer Ken Murphy said: "Whilst the market environment remains incredibly challenging, our laser focus on value, as well as the daily dedication and hard work of our colleagues, has helped us to outperform the market.
"Although difficult to separate from the significant impact of lapping last year's lockdowns, we are seeing some early indications of changing customer behaviour as a result of the inflationary environment."
Looking ahead, Tesco's annual guidance was left unchanged. For financial 2023, Tesco is guiding for retail adjusted operating profit between GBP2.4 billion and GBP2.6 billion - which would be below the GBP2.65 billion registered in financial 2022.
AJ Bell's Russ Mould explained that Tesco's dominant market position enables it to drive a "hard bargain" with suppliers to help protect its margins against mounting inflation without putting up prices too much for shoppers.
However, Mould cautioned that even a powerhouse like Tesco was not "immune to the challenges facing all consumer-facing businesses" as thousands of households across the country grapple with rising living expenses.
Still, Mould acknowledged that the cost of living crisis was "largely out of Tesco’s hands" and when it comes to the things it can control "it is doing well".
"This is reflected in market share gains for Tesco - with the proposition looking less vulnerable to the threat posed by Aldi and Lidl than the likes of Morrisons, Sainsbury's and Asda," Mould said.
"The business has been streamlined, issues like the pension scheme have been sorted out and its debt has been refinanced. This means a good portion of the cash the company generates can be handed back to shareholders through dividends and share buybacks," Mould added.
The stock closed up 0.1% at 249.94 pence on Friday.
By Arvind Bhunjun; [email protected]
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