Key Takeaways
- Shares of Tesco declined more than 2% following Q1 UK comparable sales growth of only 1.8%, below Wall Street estimates
- Total group comparable sales reached £16.83 billion, with UK food rising 2.6% and fresh categories advancing 3.6%
- Booker wholesale division disappointed with comparable sales down 3.2%, worse than the anticipated 2.4% drop
- Management maintained full-year outlook: adjusted operating profit between £3–3.3 billion and free cash flow of £1.5–2 billion
- Chief Executive Ken Murphy attributed the weakness to difficult weather comparisons versus last year’s strong quarter
Shares of Tesco tumbled over 2% Thursday, hovering near 445p, following the British supermarket giant’s announcement of first-quarter sales figures that underwhelmed market watchers.
Comparable sales in the UK advanced 1.8% during the 13-week period ending May 30. The figure settled at the lower boundary of analyst projections and trailed Visible Alpha consensus by approximately 50 basis points. The performance marked a notable deceleration from the previous year’s momentum.
Chief Executive Ken Murphy moved quickly to downplay concerns. Speaking with media, he emphasized that weather patterns played an outsized role in the numbers, noting that the year-ago quarter benefited from exceptionally favorable conditions that provided an unusual tailwind.
“I wouldn’t be reading too much into it,” Murphy stated.
On a group-wide basis, comparable sales similarly increased 1.8%, totaling £16.83 billion. Within the UK market, food sales climbed 2.6%, while fresh food categories posted a stronger 3.6% gain.
Analysts at Bernstein echoed the CEO’s assessment, characterizing the deceleration as likely transitory and seasonal in nature. The firm highlighted moderating food price inflation, more challenging 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 Weighs on Results
The Booker wholesale arm represented another area of concern. Comparable sales in that segment contracted 3.2%, falling short of the 2.4% decline Wall Street had anticipated.
Core retail operations at Booker decreased 1.5%, partially reflecting the loss of a significant national customer. Catering revenues declined 3.3%, which management attributed to adverse weather conditions and the timing of Easter holidays.
Notwithstanding the topline disappointment, Tesco reaffirmed its full-year financial targets. The company continues to project adjusted operating profit in the £3 billion to £3.3 billion range, alongside free cash flow of £1.5 billion to £2 billion for fiscal 2026/27.
Positive Developments Emerge
Beyond UK borders, Tesco’s Republic of Ireland operations delivered comparable growth of 3.3%, surpassing expectations. The Central European business expanded 0.8%. Digital sales across international markets surged 17.4%.
Customer sentiment metrics also showed improvement. Tesco’s UK net promoter score climbed six points year-over-year. The retailer expanded its Aldi Price Match program into its convenience store network as part of ongoing value-focused initiatives.
Tesco noted that Middle East tensions have not materially impacted operations to date, though management acknowledged potential inflationary risks could emerge later in the fiscal year.
Regarding capital allocation, Tesco has repurchased £341 million worth of shares since initiating its £750 million buyback program in April.
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