In key news on UK stocks, British supermarket chain Tesco PLC (GB:TSCO) reaffirmed its full-year guidance after witnessing market share gains in the first quarter of Fiscal Year 24/25 (13 weeks ended May 25, 2024). The company’s market share increased by 52 basis points to 27.6%, as customers continued to switch from rival supermarkets to Tesco for value deals amid tough macro conditions.
Tesco shares closed 2.7% higher on Friday in reaction to the impressive first-quarter performance.
Tesco’s Strong Run in Q1
Tesco’s retail sales (excluding value-added tax and fuel) increased by 3.4% on a like-for-like (LFL) basis to £15.3 billion. Notably, UK retail sales came in at £11.4 billion, witnessing LFL growth of 4.6%. Sales from the company’s business in the Republic of Ireland (ROI) rose 4.4% to £731 million, while Central Europe sales increased 0.6% to £975 million.
Coming to category-wise growth within the UK market, food sales increased by 5% mainly due to strong fresh food volumes. Meanwhile, non-food sales grew 0.7% due to strength in clothing. Online sales surged 8.9%, fueled by higher volumes and solid performance of the company’s food delivery service Whoosh.
While easing inflation boosted Tesco’s overall business, the company’s wholesale business, Booker, experienced a sales decline of 1.3% due to weakness in tobacco sales. The company also blamed the slump in parts of the fast-food market serviced by Best Food Logistics for the decline in Booker sales.
Guidance Intact
Tesco maintained its full-year guidance, backed by the strength in the fiscal first quarter. For FY24/25, the company projects a retail adjusted operating profit of at least £2.8 billion. It expects to generate retail free cash flow in the range of £1.4 billion to £1.8 billion.
The company is confident about the momentum in its business, supported by its value offerings. It recently launched over 100 new own-brand products to boost sales.
Is Tesco a Buy or Sell?
With eight Buys and one Sell, Tesco stock is assigned a Strong Buy consensus rating. The average TSCO share price forecast of 335.38p implies 8.2% upside potential from current levels. Shares have advanced about 10% so far this year.
