Tesco PLC (LSE:TSCO) will deliver a first-quarter trading update on Thursday 12 June, with investors watching closely for signs of how the UK’s largest supermarket is navigating an increasingly competitive grocery market.
In April, Ken Murphy, chief executive of the FTSE 100-listed grocer, warned that profits will fall this year in as he issued guidance that was seen as cautious but still aggressive.
He sketched out a full-year profit outlook of £2.7 billion to £3 billion, implying a potential decline of up to 13.7%, but with such a wide guidance range giving Tesco "flexibility and firepower to be able to respond to current market conditions", Murphy explained.
Analysts at Shore Capital said the words from the market leader amounted to "getting the knuckle-duster out" and brandishing Tesco's capability to use its size to battle sector rivals on prices.
Murphy acknowledged that there had been an "increase in the competitive intensity of the UK market", which was a key factor in this – widely seen as a reference to Asda, which recently launched an aggressive new phase of investment under new boss Allan Leighton, cutting prices across 12,000 product lines.
Despite Asda’s moves, analysts at Citi and JPMorgan consider Tesco’s guidance to be prudent. Citi said Tesco’s strong balance sheet allows it to invest in pricing without significantly impacting free cash flow, which stood at £1.75 billion last year.
Citi also described recent executive changes at Tesco as a “modest positive”, with a renewed focus on margin-enhancing areas such as retail media, Clubcard personalisation, and the Tesco Marketplace.
While the company is expected to lean heavily on price promotions in the months ahead, analysts say its scale and cash flow resilience continue to make Tesco a defensive choice for investors in a more uncertain macroeconomic environment.
Tesco reported like-for-like sales growth of 3.1% for the past results, and analysts at AJ Bell said the movement of LFL sales at the UK, Irish and Booker businesses will be key for investors.
Only Booker suffered a drop in LFLs in the financial year to February 2025 and the latest market share figures from Kantar for the UK grocery market "bode well", they added, as Tesco has gained 40 basis points of market share over the past year.