Tesco (TSCO) shares have fallen 6.8% this week, with most of the damage arriving after Thursday’s first-quarter trading statement covering the 13 weeks to 30 May 2026.
Group like-for-like sales rose 1.0%, below expectations of around 1.4%, while UK and Ireland sales increased 1.8% against forecasts closer to 2.3%.
The initial market reaction was relatively modest, with the shares falling around 2% on the day. However, the selling continued in the sessions that followed, suggesting investors saw more than just a one-quarter disappointment.
Part of the shortfall can be explained by difficult comparatives. Tesco was lapping a particularly strong period last year that benefited from favourable weather and disruption at rival supermarkets. Even so, markets rarely reward companies for missing expectations, however small the gap may appear.
The underlying performance was stronger than the headline numbers implied. UK food sales rose 2.6%, fresh food sales increased 3.6%, and the premium Finest range delivered 9% growth. Online sales climbed 8.9%, while Whoosh same-day deliveries surged more than 30%. Customer satisfaction also improved, with Net Promoter Score rising six points year on year.
Booker remained the weakest part of the group, with like-for-like sales down 3.2%. Tesco blamed the decline on the earlier loss of a lower-margin national contract, which is a reasonable explanation. Nevertheless, investors looking for evidence of broad-based momentum were left with one obvious area of weakness.
The grocer has chosen to leave guidance unchanged, continuing to expect adjusted operating profit of £3.0bn to £3.3bn and free cash flow of £1.5bn to £2.0bn. There was nothing alarming in that decision, but there was little to excite investors either. In an environment where expectations had crept higher, standing still was never likely to be enough.
The market’s reaction looks particularly notable because analyst sentiment has remained largely supportive. Morgan Stanley recently initiated coverage with an Overweight rating and a 560p target price, while JPMorgan, Deutsche Bank and Citi have all lifted their targets in recent weeks. Bernstein has also argued that slower growth reflects easing food inflation and tougher comparisons rather than any deterioration in Tesco’s competitive position.
Meanwhile, Tesco continues returning cash to shareholders, with the company already completing £341m of its planned £750m buyback programme, reducing the share count to 6.31 billion, while the dividend yield remains close to 3%. Those factors do not provide immediate growth, but they do offer a degree of support if sentiment remains weak.
The market appears to have drawn a harsher conclusion than most analysts. While brokers continue to argue that Tesco’s slowdown reflects tougher comparisons and easing inflation, investors have become noticeably less willing to pay for that explanation.
In my view, the evidence still favours the latter. Tesco’s market position remains strong, food sales continue to grow, digital channels are expanding rapidly, and management has not seen enough deterioration to cut guidance. However, the shares have lost the momentum that carried them through much of the past year, and that means investors may need to be patient.
For now, Tesco looks less like a compelling bargain and more like a stock in a holding pattern. The business appears healthy, but the next major test will come with October’s interim results, when investors will want proof that this quarter was a temporary wobble rather than the start of a slower growth phase.