Tesco shares slipped on Thursday after the supermarket revealed sales growth had slowed despite market share growing in the first quarter.
Group sales rose 1% during the period, driven by a 1.8% increase in the UK and 3.3% in Ireland. But this was well below the 3.5% UK growth the group enjoyed in the last full year period.
Mark Crouch, eToro’s Market Analyst said: “Even as growth moderates against tough comparisons from last year, Tesco’s first-quarter update shows the supermarket giant continues to outperform the broader grocery market. Like-for-like sales growth of 1.8% may have fallen short of market expectations, but the more important takeaway is that Tesco is still gaining market share in an intensely competitive environment.”
“The decision to maintain full-year profit guidance suggests management remains confident that its value-led strategy is working. Extending Aldi Price Match to more than 2,000 Express stores underlines Tesco’s determination to protect its customer base as households remain highly price-conscious.”
The efforts to win customers away from the discounters are working – market share is still rising, and sales are up. Investors, however, may start looking to margins and how they will perform against a backdrop of stiff price action to maintain their dominant presence in the UK.
But Tesco seems to have cleared the first hurdle by maintaining its adjusted operating profit guidance for the year between £3.0bn and £3.3bn.
Garry White, Chief Investment Commentator at Charles Stanley, said: With margins under the spotlight, management’s confidence in maintaining full-year profit guidance should reassure investors that Tesco is managing the balance between competitiveness and profitability effectively despite a subdued trading backdrop.”
Tesco shares were down 2% at the time of writing on Thursday.