Tesco shares slide despite its biggest ever sales week in the run-up to Christmas as shoppers snapped up festive food
- Tesco says overall like-for-like sales in UK and Rest of the World up 2.3%
- UK like-for-like sales rise by 1.9% but food sales were up by 3.7%
- Tesco latest of the big British supermarkets to release good trading figures
- But Tesco shares slide on combination of profit-taking and high expectations
Britain's biggest supermarket chain said that its UK like-for-like sales were up 1.9 per cent, driven by a 3.7 per cent rise in fresh food sales as shoppers snapped up festive staples and treats.
But investors, who have seen Tesco's share price rise by a quarter since mid-summer, were not impressed and shares slipped back today on what City analysts said was likely to be a combination of a bout of profit taking and mild disappointment that the supermarket had not done even better.
Tesco said that shoppers snapping up festive food helped it to its biggest ever sales week in the run-up to Christmas
Tesco shares were down 4.5 per cent, or 9.5p, at 202.4p at 11.45am.
James Grzinic, analyst at Jefferies, said: 'Tesco's update confirmed a solid third quarter and Christmas, but not quite the dominant display expected by some.'
Overall like-for-like sales in Tesco's third quarter were up 2.3 per cent and it said that it had continued to outperform the UK market, particularly in fresh food.
Tesco chief executive Dave Lewis said: 'We have continued to outperform the market throughout this period, particularly in fresh food, thanks to our most competitive offer for many years.
'Our trading momentum accelerated across the third quarter and into December, with the four weeks leading up to Christmas Day delivering record sales and volumes in the UK.'
Tesco claimed to be working with suppliers to keep inflation down for customers and Mr Lewis said shoppers are 'cautious' about how they spend. A ray of light came from clothing sales, up 5 per cent and the chief executive said Christmas was the 'coming together' of over three years of work on a turnaround.
Tesco's sales performance was impressive as the period spanned the collapse of wholesaler Palmer & Harvey, which was a major supplier to UK stores.
Lewis said: 'Incorporating Palmer & Harvey volumes and complexity during this peak period was challenging, resulting in lost tobacco sales across December and putting further strain into our distribution network, particularly post-Christmas.
'Whilst I am pleased to say these challenges have now been resolved, they took the shine off an otherwise outstanding performance for the period as a whole.
'Our colleagues and supplier partners have done a fantastic job serving our customers better every day throughout this exceptionally busy time, and I want to thank them for everything they have done.
'We are confident in the outlook for the full year and are firmly on track to deliver our medium-term ambitions.'
What next for supermarket shares?
Premium products: Sainsbury's enjoyed strong sales across its premium ranges
Supermarket results have looked good on the surface over the past week, but they are helped by food inflation, which boosts like-for-like sales.
Neil Wilson, senior market analyst at ETX Capital, said inflation was partly responsible for higher sales.
'As with all the supermarkets, while top line growth is seen, we have scant detail on margins and inflation. Inflation is undoubtedly helping to push up sales figures, but it is less clear where margins are. We have noted Sainsbury's struggles on that front. Both Tesco and Sainsbury's have not mentioned margins in their updates,' he said.
'The likelihood – as Tesco suggests in its update – is that it is better able to absorb inflation and pass less on to consumers than rivals, which ought to be positive for margins on a relative basis with competitors.
'As ever though the chances are that Tesco shares could slide after ramping ahead of the release in recent weeks – a trend we saw throughout 2017.'
George Salmon, equity analyst at Hargreaves Lansdown, said that sales momentum was building at Tesco and the return of a dividend will cheer investors.
He said: 'When one considers the difficulties that have faced Dave Lewis since he took over in 2014, it’s hard not to be impressed by his achievements. The balance sheet looks better and he’s brought the dividend back earlier than many had thought possible.
Hitting the longer-term target of rebuilding margins to close to 4 per cent will be key to building the dividend back up to more meaningful levels. While conditions clearly remain tough, there’s nothing in these numbers that says the group can’t meet its goals.
Ed Meier, manager of the Old Mutual UK Equity Income Fund, sees reason for optimism and continued increases in earnings.
'It is slightly unfortunate that the headline numbers have taken a little shine off what are good underlying results for Tesco over the Christmas season, he said. 'Headline like-for-like sales will probably disappoint the stock market but the core profit driver, food, still generated 3.4 per cent of sales on a same-store basis as the group continued to grow grocery volumes in spite of inflation.'
'This is bang in line with the strategy to take the business towards that 3.5 per cent -4 per cent margin where, we believe, approximately 20 pence earnings per share can be generated.'
Yesterday, Sainsbury's upped its annual profit forecast after enjoying strong sales over the crucial Christmas period.
The supermarket's like-for-like sales increased by 1.1 per cent in the 15 weeks to 6 January, with revenues up 2 per cent and grocery sales up 2.3 per cent. While remaining 'cautious' about the consumer environment, the company has boosted its full-year profit forecast to around £559million.
Half of the 185 new products the supermarket launched over Christmas were in its premium Taste the Difference range.
Sainsbury's also said it enjoyed strong sales across its premium ranges over the period, adding that customers were also snapping up its 25p vegetable products.
On Friday 22 December, the supermarket said it had its strongest day of store sales and delivered an online grocery order to a customer every second.
Morrisons kicked off the grocers' festive trading updates this week with a better-than-expected sales as it was boosted by demand for premium and party food.
Britain's third largest supermarket posted a 2.8 per cent rise in sales at stores open for more than a year in the ten weeks to 7 January, well above analysts' expectations of 1.7 per cent growth.
Morrisons said trading was 'especially strong' during the Christmas and New Year period, with group like-for-like sales up 3.7 per cent for the six weeks to the beginning of January.
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