Tesco tipped for continued sales growth amid rising shop price inflation
- Credit: PA
Tesco is expected to report continuing sales growth when it announces first quarter results next week, helped by rising shop price inflation.
The supermarket giant is tipped by analysts at Bernstein to report a 2.2% rise in like for like sales in the period, a significant improvement on the last quarter’s 0.7%.
In May, Tesco boss Dave Lewis hailed the grocery giant’s first full year of sales growth in seven years as his turnaround plan motors on.
James Grzinic, analyst at Jefferies, said: “Tesco’s first quarter sales update could provide some relief, with inflationary support driving improved UK like for likes.
“A more supportive inflationary environment and Kantar indications of a recent rebuild in food sales momentum at Tesco are key in informing our forecast.”
The pound’s collapse following the Brexit vote has driven up inflation which, in moderation, can help supermarkets boost their sales and profit margins.
However, it can also drive shoppers to seek out bargain alternatives as rising costs are passed on to consumers.
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Graham Spooner, investment research analyst at The Share Centre, said: “There have been better signs from supermarket giant Tesco in recent times but there is no escaping the continued fierce competition in the sector, especially from the discounters Aldi and Lidl.
“At the full year results in April there were encouraging signs of growth in the UK but the market will be looking to see if that has continued, as well as an update on the extensive restructuring programme that the group is engaged in.”
The relentless rise of German upstarts Aldi and Lidl has seen a continual market share erosion of Britain’s so called Big Four players - Tesco, Asda, Sainsbury’s and Morrisons.
Following the trading update on Friday, Tesco will hold its annual general meeting, with Mr Lewis’ generous relocation package set to come under scrutiny.
The chief executive, dubbed “Drastic Dave”, was handed a £142,000 benefits package to help him relocate from London to near the supermarket’s Hertfordshire head office.
But shareholder lobby group Pensions and Investment Research Consultants has advised investors to oppose the award at the AGM after deeming it inappropriate.
Tesco is also likely to face questions over its proposed £3.7 billion merger with food wholesaler Booker, a deal that is subject to a Competition and Markets Authority (CMA) investigation.
The CMA is assessing whether the deal could reduce competition and choice for shoppers.
Britain’s biggest supermarket has faced criticism from investors over the move, with some shareholders branding the takeover tilt a “distraction” and urging the Big Four grocer to scrap it.
Bruno Monteyne, analyst at Bernstein, said: “The fact that two shareholders came out vocally against the deal and that there are more shareholders out there with some reservations about it, doesn’t help with investor sentiment.
“It adds further uncertainty as potential new investors now have to think about the risk of the deal going through but distracting the team and the deal being rejected by shareholders and damaging confidence in the Tesco management team.”