A strong start to the financial year for Tesco sent shares to their highest level in more than a decade at the retailer.
Tesco fought off intensifying competition from traditional and discount rivals to continue its run of growing market share in the first quarter to 24 May.
Group revenues increased 4.6% year on year to £16.4bn, driven by a 5.9% jump in UK food sales and a 6.2% rise in non-food.
It highlighted particular success for the premium Finest own label range, which recorded growth of 18% in the quarter, and online, where sales climbed 11.5%.
The performance translated to a bump in market share to 28% for the 12 weeks ended 18 May, bolstered by a sharpening of prices in recent years thanks to initiative such as the Aldi Price Match scheme on 600 lines, Low Everyday Prices on 1,000 lines and 9,000 Clubcard Prices deals each week.
Tesco is aiming to get back to its previous peak of 30%-plus.
Shares in London were up more than 3% today to 397.6p before settling back to close 1.8% higher at 392.3p. The stock is flying thanks to Tesco firing on all cylinders in the past year, with the share price up 31% over a 12-month period. Market confidence in the retailer also carried across to gains for Sainsbury’s as shares in the group climbed 1.6% on the back of Tesco’s results.
“Tesco is off to a strong start this year, solidifying its position as market leader and capturing more share by enhancing value credentials, improving non-food categories and boosting its premium offer,” said GlobalData retail analyst Aliyah Siddika.
Despite the impressive performance, Tesco left profit guidance for the year unchanged at between £2.7bn and £3bn.
But Siddika added it wouldn’t be a surprise to see an upward revision later in the year if momentum continued.
RBC analyst Manjari Dhar warned of a step up in competition from rivals in the market.
“We view Tesco as a best-in-class player in the UK food retail space, with a strong business model and an experienced management team,” she said. “It has done well to gain market share in recent years, but we note a step-up in competitiveness by some key peers may mean that further gains are more difficult to come by.”
Tesco boss Ken Murphy admitted, in a call following the results, that its rivals had “upped their game” as he revealed the supermarket was encountering “intense competition”.
AJ Bell investment director Russ Mould said: “Competitive pressures continue to intensify in the grocery sector as supermarkets fight for more customers. Tesco has successfully fought off discount rivals Aldi and Lidl and protected its dominant UK market position, yet at no point can it take its foot off the pedal. The moment Tesco relaxes is the point at which rival operators pounce on the opportunity to eat some of its lunch.”
No comments yet