Key Takeaways
- Shares of Tesco declined more than 2% following Q1 UK comparable sales growth of 1.8%, beneath analyst projections
- Total group comparable sales reached £16.83 billion, driven by UK food sales up 2.6% and fresh categories rising 3.6%
- The Booker wholesale division posted disappointing results with comparable sales declining 3.2%, worse than the anticipated 2.4% drop
- Management reaffirmed full-year targets: adjusted operating profit between £3 billion and £3.3 billion, with free cash flow of £1.5 billion to £2 billion
- Chief Executive Ken Murphy attributed the shortfall to challenging weather comparisons versus the previous year’s exceptional conditions
Shares of Tesco tumbled more than 2% during Thursday’s session, hovering near 445p, following the release of first-quarter results that revealed sales expansion falling short of market forecasts for Britain’s leading grocery retailer.
Comparable sales in the UK advanced 1.8% during the 13-week period ending May 30. This figure landed at the lower boundary of consensus projections and approximately 50 basis points beneath Visible Alpha estimates. The performance marked a notable deceleration from the previous year’s growth rate.
Chief Executive Ken Murphy moved quickly to downplay the figures. He informed media representatives that the outcome was significantly impacted by weather patterns, noting that the prior year’s corresponding quarter experienced “outstanding” meteorological conditions that provided an unusually robust tailwind to operations.
“I wouldn’t be reading too much into it,” Murphy stated.
Group-wide comparable sales similarly advanced 1.8%, totaling £16.83 billion. Food sales across UK operations increased 2.6%, while fresh food categories delivered stronger performance with a 3.6% uptick.
Analysts at Bernstein echoed the chief executive’s assessment, characterizing the deceleration as probably a seasonal and transitory phenomenon. The brokerage highlighted moderating food price inflation, more difficult year-over-year comparisons, and weaker demand in non-food categories as primary drivers — rather than any fundamental deterioration in Tesco’s market standing.
Wholesale Division Underperforms
The Booker wholesale operation emerged as another area of concern. Comparable sales in this segment contracted 3.2%, underperforming the 2.4% reduction that market observers had forecast.
Core retail revenue at Booker decreased 1.5%, partially attributable to the loss of a significant national customer. Catering segment sales fell 3.3%, which management linked to adverse weather conditions and the timing of the Easter holiday.
Notwithstanding the headline disappointment, Tesco maintained its full-year financial outlook. The company continues to project adjusted operating profit ranging from £3 billion to £3.3 billion, alongside free cash flow of £1.5 billion to £2 billion for fiscal 2026/27.
Positive Developments Elsewhere
Beyond UK borders, Tesco’s Irish operations delivered comparable growth of 3.3%, surpassing market expectations. The Central European business expanded 0.8%. Digital sales throughout the international portfolio surged 17.4%.
Customer sentiment metrics also demonstrated improvement. Tesco’s UK net promoter score climbed six points on a year-over-year basis. The retailer expanded its Aldi Price Match program into the convenience store network as part of ongoing value-focused initiatives.
Tesco noted that Middle Eastern geopolitical tensions have not meaningfully impacted trading results to date, while recognizing that the situation could potentially contribute to inflationary headwinds as the year progresses.
Regarding capital allocation, Tesco has executed £341 million in share repurchases since initiating a £750 million buyback program in April.
