Despite a decent set of full-year numbers in April, Tesco’s share price has fallen in recent weeks, hitting a 9-month low earlier this month.
This caution has been dictated by a consumer outlook that has been cautious at best and which Tesco management warned of in April.
Since then we have seen UK inflation jump sharply with more to come, while the outlook for 2023 predicted a modest fall in adjusted operating profits from £2.83bn l year to between £2.4 and £2.6 billion.
Tesco has pledged to continue its Aldi price matching program and expand it to 650 lines, along with various Clubcard promotions.
This determination to increase pressure on Aldi and Lidl will inevitably put downward pressure on margins, with Tesco’s peers of Sainsbury’s, Asda and Morrisons facing similar challenges, and today’s first quarter figures are likely to reflect this decision.
Group like-for-like sales were up 1.5% year-on-year, but the UK and ROI business saw larger than expected declines in sales volumes.
First-quarter UK comparable sales fell 1.5%, much more than expected, while comparable sales ROI fell 2.4%, with the retailer saying it was seeing the first signs of changing customer behavior, suggesting that customers prefer low-margin own brand items to branded products
The Booker business really stood out, with the catering side of that business helping to boost sales by 19.4% to £2.1bn, with that part of the business benefiting from the easing of lockdown restrictions. lockdown which boosted turnover.
Central Europe also led to a decent rebound; however, comparatives were favorable with extended covid lockdowns helping to restrict sales a year ago.
Despite the challenges facing the business, Tesco kept its full-year forecast for retail adjusted operating profit unchanged.
As we look to the rest of the year, costs are set to remain a sticking point with rising fuel prices expected to impact its delivery and logistics operations, an issue that Aldi and Lidl have not. not to the same extent.
Rising staff costs will also act as a drag, with the supermarket pledging to raise staff salaries in its effort to maintain service levels, raising salaries by 6%, while rising fuel prices will likely increase the costs of maintaining its delivery and logistics operations.
Tesco management is taking steps to mitigate these rising costs with the food retailer currently on a three-year cost-cutting program, with plans to seek a £1billion cut.