Tesco’s sales growth slows in subdued UK market

LONDON (Reuters) – Tesco, Britain’s biggest retailer, said sales growth slowed in its latest quarter, blaming a subdued overall market that has been hampered by poor early summer weather, sending its shares lower on Thursday.

FILE PHOTO: A Tesco supermarket is seen, in west London on September 30, 2008. . REUTERS/Toby Melville/File Photo

Shares in Tesco fell as much as 3.3% in early trading after the group said UK like-for-like sales rose 0.4% in the 13 weeks to May 25, its fiscal first quarter. The stock had risen 20% this year prior to the update and made up most of the lost ground in the first hour of trading.

Although that was a 14th straight quarter of growth and within the range of analysts’ forecasts of flat to up 1%, it marked a slowdown from growth of 1.7% in the previous quarter.

Tesco Chief Executive Dave Lewis said the group had outperformed the wider UK market on both a sales and volume basis, thanks to improved ranges and lower prices. But he acknowledged a tougher market.

Recent industry data has shown all of Britain’s big four grocers continuing to lose market share to German-owned discounters Aldi and Lidl.

“When I look at look at the core food categories, we don’t see any change in (consumer) behavior but we do see a change in behavior around the weather, the seasonal products – be that clothing, be that some of the seasonal general merchandising,” he told reporters.

“I have to put that down to weather rather than that consumer confidence element which is clearly there,” he said.

Lewis said there had been some weakening in consumer sentiment in the UK, partly driven by the political backdrop.

Britain was due to leave the EU in March but that has been pushed back until Oct. 31 after lawmakers rejected Prime Minister Theresa May’s negotiated settlement.

HARD ACT TO FOLLOW

Lewis also pointed to a hard comparison with the same quarter last year, when Britain enjoyed hot weather and major events including a royal wedding.

In Tesco’s second quarter, the year-on-year comparison will not ease, given last summer’s heatwave and the men’s soccer World Cup which boosted demand.

“We do sense that those tough comparatives and awful June weather may mean that the Q2 UK out-turn, at least, could be tougher,” said Shore Capital analyst Clive Black.

Morrisons, Britain’s fourth-largest grocer, last month missed quarterly growth forecasts, blaming political and economic uncertainty and the third-largest player, Asda, warned of an “increasingly challenging backdrop”.

Morrisons and Amazon said on Thursday they had extended their “Morrisons at Amazon” same-day online grocery delivery service to more cities across Britain, underlining the competitive pressures in the sector.

Celebrating its 100th anniversary Tesco is deep into a recovery plan under Lewis after a 2014 accounting scandal capped a dramatic downturn in its fortunes.

In April the group reported a 34% rise in full-year operating profit and said it had met or was about to meet the vast majority of its turnaround goals – including a key margin target of earning between 3.5 and 4 pence of operating profit for every pound customers spend by the end of its 2019-20 financial year.

Prior to Thursday’s update, analysts were on average forecasting operating profit before exceptional items of 2.48 billion pounds for Tesco’s 2019-20 year, up from 2.21 billion pounds in 2018-19.

Reporting by James Davey; Editing by Paul Sandle/Keith Weir

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