Tesco PLC's (LSE:TSCO) first-quarter update showed a slowdown in sales growth, but for investors keen to look behind the numbers, analysts had lots of good explanations.
The country's biggest supermarket chain reported like-for-like sales growth at 1.8%, down from 3.1% in the previous quarter and well below the 5.1% delivered in the comparable period last year.
But the numbers were never likely to be flattering, analysts said, with Tesco up against a quarter that benefited from a triple impact of unusually warm weather, disruption at rivals and higher food inflation.
Strip those effects away and the picture looks more stable than the headline growth rate suggests.
On a two-year basis, Jefferies noted that UK like-for-like sales were up 6.9%, suggesting the business has largely held on to the gains made during a period of exceptional trading conditions.
The more interesting debate for some might not be about sales growth but margins, as Tesco left profit guidance unchanged at £3.0-3.3 billion.
Jefferies said investors would focus on whether the first quarter marked the low point for trading momentum this year and whether Tesco could deliver a margin-led upgrade when it reports half-year results in October.
With food inflation easing, investors will be watching whether management can offset slower top-line growth through a better sales mix, cost control and the exit of lower-margin business, potentially supporting profitability later in the year.
Analyst Clive Black at Shore Capital pointed to a 3.6% rise in fresh food sales and 9% growth in Tesco's premium Finest range, arguing that the figures suggest customers continue to spend on higher-quality products despite a more subdued inflation backdrop.
He also highlighted the group's continued focus on customer satisfaction, the expansion of Aldi Price Match in Tesco Express stores and efforts to make Clubcard offers more personalised, which he sees as supporting Tesco's competitive position.
Tesco shares edged lower after the update, suggesting investors remain unconvinced that slower sales growth will prove temporary.
The next company update will be October's half-year results, though hints will arrive from industry data in the coming months.
