Struggling supermarket behemoth Tesco PLC (LON:TSCO) has managed like-for-like (LFL) sales growth in its UK stores for the second quarter in a row.
Tesco hailed the performance as a continuation of the momentum from the previous quarter, although the LFL sales growth rate slowed.
In the UK stores in the 13 weeks to 28 May LFL sales (excluding fuel) were up 0.3% year-on-year, down from a 0.9% in the preceding quarter but a sharp improvement on LFL sales falls of more than one percentage point in the three quarters before that, and slightly better than the 0.2% the market had been expecting.
In the UK, volumes were up 2.2% from a year earlier while the number of transactions was up 1.5%, indicating that intense pricing pressure remains a feature of the UK supermarket scene. Tesco put the deflationary impact on UK LFL sales at around 0.7 percentage points.
The picture remained brighter in the international stores, though here too the growth rate ebbed, from 3.8% in the final quarter of the previous financial year to 3.0% in the first quarter of the current financial year.
For the group as a whole, LFL sales were up 0.9% from a year earlier, down from growth of 1.5% in the preceding quarter.
Tesco boasted that its new, exclusive fresh food brands are performing very well in the UK, with volume growth in “produce” and “meat” said to be performing around 5% better than the market as a whole.
"We have delivered a second quarter of positive like-for-like sales growth across all parts of the group in what remains a challenging market with sustained deflation,” said chief executive Dave Lewis.
“Our new fresh food brands are performing very well, with over two-thirds of our customers having bought products from the new range.
“We are encouraged by the progress we are making. By growing volumes, transforming the way we work together with our suppliers, and further optimising our store operating model we are rebuilding profitability in a sustainable way. I am confident that the improvements we are making for customers are working and will create long-term value for our shareholders," he added.
"Tesco will be particularly encouraged by the 2.2% increase in volumes which indicates it is starting to win back shoppers," suggested Russ Mould, the investment director at AJ Bell.
Richard Hunter, head of Research at Wilson King Investment Management, commented: “As Tesco continues its push to get back to its knitting, a second quarter of growth for the first time in five years has resulted.”
Hunter noted that the supermarket group had added to its raft of disposals by announcing this morning that its Harris + Hoole coffee chain is to be sold to Caffe Nero.
“Further disposals outside of this update in the form of the Turkish operation and Harris & Hoole are evidence of the company’s determination to focus on its core UK business. This was an area which the company itself admitted that it had neglected, and the new chief executive is clearly aiming to return the stock to its former status as a market darling, an accolade which has long since disappeared,” Hunter observed.
“Nonetheless, a number of red flags remain. Ongoing investment in the business as announced at the full year results will drag on profits; competition in the sector remains fierce and the shares are on an expensive multiple compared to its peers. In addition, there seems little sign of a dividend in the foreseeable future, which could cost Tesco new investors in this income seeking environment,” Hunter speculated.
Shares in Tesco were up 2.9%, about twice the level of the Footsie, in the morning trading session.
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