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Tesco sales growth slows without hot weather and royal wedding

Total sales, excluding fuel, rose 0.4% to £13.9bn with like-for-like sales up 0.2% in the 13 weeks to May 25.
Tesco
Tesco is UK's biggest supermarket in terms of market share

Tesco PLC (LON:TSCO) reported a slowdown in first-quarter sales growth due to the absence of hot weather and a royal wedding that boosted last year’s results.

The supermarket chain said total sales, excluding fuel, rose 0.4% to £13.9bn with like-for-like sales up 0.2% in the 13 weeks to May 25.

That compares to last year’s 12.1% increase in total sales and 1.8% rise in like-for-like sales, buoyed by a UK heatwave, the royal wedding of Prince Harry and Meghan Markle and the FA Cup final.

READ: Tesco explores sale of bank's mortgage portfolio and halts lending to new customers

In the first quarter of this year, UK sales dipped 0.4% to £9.1bn and like-for-like sales edged up 0.4% as the company invested in range, price and loyalty programmes to tackle tough competition.

"UK sales were up a meagre 0.4%, short of the 0.8% expected and well below the 1.7% from the prior quarter," said Neil Wilson, chief market analyst at Markets.com.

"Whilst no one thought the Christmas boost would carry through completely into the first quarter, these are mildly disappointing results. The threat from the discounters is not going away."

The UK’s biggest supermarket chains have been battling for market share as more customers flock to German discounters Aldi and Lidl.

Tesco chief executive Dave Lewis said the group still managed to grow ahead of the UK market on both volume and value.

“Our customer offer is more competitive than ever, with a wider choice of our 'Exclusively at Tesco' products now available in more stores, helping to drive more than 10% sales growth across the range,” he said.

Mixed sales performance outside of UK

In Tesco’s Republic of Ireland division, total sales increased 2.7% to £567mln and like-for-like sales gained 1.3%.

The Booker business delivered a 12.4% increase in sales to £1.5bn, but this included an additional nine trading days since Tesco completed the acquisition of the wholesaler last March.  On a like-for-like basis Booker sales rose 3.1%.

Central Europe sales dropped 7.9% to £1.3bn and like-for-like sales fell 4.9%, reflecting a decline in Poland and cooler weather across the region.

Asia sales were up 2.6% to £1.2bn with like-for-like sales rising 0.1% as the group increased market share in Thailand.

Banking division struggles 

Sales in the banking division dropped 1.9% to £270mln.

Last month Tesco said it was considering selling the banking unit’s mortgage portfolio after coming under pressure from tough market conditions.

Tesco Bank has ceased new mortgage lending while it explores options to sell the portfolio, including the complete transfer of related balances and ongoing administration of relevant accounts.

Shares fell 2% in early trading to 223p before recovering slightly to 227p.

Richard Hunter, head of markets at Interactive Investor, said the trading update was "unsurprisingly light" on strategic detail ahead of next week’s Capital Markets Day, but the trading performance showed "positive trends across the board, with the exception of its Central European business".

"Ahead of the update next week, where the company plans to unveil further value opportunities, and with many of its strategic plans already showing signs of success, prospects for Tesco are looking bright in the eyes of the market, where the general view of the shares as a strong buy remains intact," he said.

 

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