Tesco’s (TSCO) first-quarter trading update delivered enough progress for the grocer to keep its full-year outlook unchanged, although investors were left disappointed by slower-than-expected growth in its core UK business, sending shares lower on Thursday.
The UK’s largest supermarket reported sales of £16.83 billion in the 13 weeks to 24 May, with group like-for-like sales rising 1.0% as growth in its retail operations and online channel offset weaker performance at its Booker wholesale division.
UK like-for-like sales increased 1.8%, below analyst expectations of 2.3%, despite solid growth across key grocery categories. Food sales rose 2.6% compared with the same period last year, helped by a 3.6% increase in fresh food sales, while demand for Tesco’s premium Finest range remained strong with sales climbing 9%.
Online shopping continued to gain ground, with sales rising 8.9% during the quarter.
Elsewhere, Tesco delivered stronger performances than expected. Like-for-like sales in the Republic of Ireland rose 3.3%, supported by food sales growth of 3.7%, while Central Europe recorded growth of 0.8%, both exceeding market forecasts.
Booker remained the weakest part of the group, with like-for-like sales falling 3.2%, a larger decline than analysts had anticipated. Tesco said the drop reflected the loss of a lower-margin national account that ended last August, while the comparable period last year also benefited from favourable weather conditions.
The market reaction was negative despite the overall increase in sales, with Tesco shares closing down 2% at 447.60p. Year to date the stock remains flat, marginally gaining 1.2%.
Chief executive Ken Murphy said he was pleased with the group’s progress during the quarter, adding that sales growth continued to build on what he described as an exceptional performance in the previous financial year.
Murphy also noted that conflict in the Middle East continues to create uncertainty for many households, while highlighting strong growth at Tesco Media, where the upcoming World Cup is expected to create additional advertising opportunities.
Despite the mixed performance across its divisions, Tesco maintained its guidance for the current financial year and continues to expect adjusted operating profit of between £3.0 billion and £3.3 billion. Free cash flow is also forecast to remain within its medium-term target range of £1.5 billion to £2.0 billion.
The retailer has so far completed £341 million of its £750 million share buyback programme, which is due to run until April 2027.
Tesco will publish its half-year results on 8 October.