Tesco’s like-for-like (LFL) sales rose 4.6% to £16.4bn in the first quarter, excluding fuel. That included growth of 5.1% in the biggest region, the UK, where its market share rose by 0.44 percentage points to 28.0%.
In Central Europe, growth across all regions was driven by a strong performance in food which helped LFL sales rise by 4.4%.
Wholesaler Booker saw LFL sales growth of 2.0%, as stronger growth in retail and catering more than offset a continued decline in tobacco and food logistics.
Tesco’s reiterated its full-year underlying operating profit guidance of £2.7-3.0bn (2024: £3.1bn). Free cash flow is expected to fall within the medium-term guidance range of £1.4-1.8bn.
Around £0.4bn of the ongoing £1.45bn share buyback programme has been executed, with the remainder to be completed by April 2026.
The shares rose 1.7% in early trading.
Our view
Tesco delivered a strong start to the year, achieving sales growth across all business segments and market share gains in the core UK retail market.
Despite this, there were no upgrades to full-year guidance given some ongoing concerns over a potential price war between grocers. We’re not convinced that’s the case just yet. Even if it does materialise, Tesco reckons it’s in the most competitive position it's been in for many years, helped by the ALDI price match and Clubcard prices keeping customers loyal. And despite recent headlines, ASDA doesn’t appear to have the financial firepower to disrupt this dynamic.
Tesco's enormous scale and the mature, deeply rooted nature of its relationships are its key tools in keeping prices down. Tesco’s strategy relies on offering better all-around pricing than the competition, and it has delivered remarkably well. Further sharpening of its proposition helped the group record its highest market share (28.0%) in nearly a decade.
An expanded Tesco Finest range is helping it poach customers from more premium supermarkets. And those who already shop at Tesco are treating themselves at home rather than going out, boosting Finest volumes. We view both of these shifts as potentially long-term in nature, meaning there's more juice to be squeezed.
Tesco isn't just a retailer, it also owns the wholesaler Booker, which offers a different route to growth across the key business streams of catering and retail. Booker contributes around 14% of the total group revenue. There’s been a modest rebound in sales here of late, driven by growth in both the retail and catering divisions which helped offset declines in tobacco and logistics. Given the long-running decline of the tobacco market, it’s likely to be a drag on performance for the foreseeable.
There’s also plenty of free cash flow pumping around the business. That underpins the group's ability to invest in keeping prices competitive, as well as sustain the attractive 3.7% prospective dividend yield and share buyback programme. No dividend is ever guaranteed.
While we applaud the caution, this year's profit guidance looks a bit too conservative to us, potentially leaving room for positive surprises later in the year. And with operations focussed on this side of the Atlantic, President Trump’s tariffs pose little threat to disrupt operations directly.
Tesco's more reliable revenue streams, market-leading proposition, and income potential shouldn't be overlooked. That could offer a relatively insulated space from some of the US-led volatility. But these strengths are reflected in a valuation towards to top end of its peer group. This means there’s pressure to stay ahead of the competition, which increases the risks of ups and downs if any slip-ups occur.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Tesco’s management of ESG risk is strong.
The group has a corporate responsibility committee overseeing the group’s social and environmental obligations. It also discloses a substantial amount of ESG-related information in its annual report. However, it has ongoing involvement in controversies related to human rights in supply chains.
Tesco key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.