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Could surging sales boost Tesco share price?

Could surging sales boost Tesco share price?

The UK's number one supermarket reports it first-quarter figures on Friday, as the effect of the coronavirus pandemic is laid out for investors, who will watch closely for any effect on the Tesco share price when the market opens an hour after the results are released.

Tesco share price stuck in neutral

While sales have shown healthy signs over recent weeks and months, costs have shot up as well, and the net result on Tesco’s share price is, really, that little has changed over the last year, with the supermarket moving away from its 52-week low point of 204.7p in March, up towards 250p, before drifting lower again.

When the supermarket reported its full-year numbers back in April, Tesco’s share price moved modestly higher despite some wider criticism that it was paying a dividend to shareholders, while still benefiting from a business-rates tax cut, along with a host of other measures designed to help the hard-pressed retail sector ride out the coronavirus lockdown. This may be a valid criticism, but Tesco, along with the rest of the supermarket sector, has faced challenges of its own as a result of the crisis, albeit ones of a different degree.

Sharp rise in costs

Tesco’s annual figures were largely overshadowed by how the company has dealt with the challenges facing the business around the coronavirus pandemic, including an increase in costs. A sharp rise in costs, of between £650m and £1bn, along with the risks to its staff of staying open to feed the nation, has presented its own challenges not only to its supply chain, but its ability to meet and boost its online, as well as physical delivery targets, in response to huge jumps in demand.

One advantage Tesco does have is the size of its stores, which makes social distancing a little bit easier, and helped boost its sales by 11.7% in the latest Nielsen data for supermarket stores, even outpacing Aldi in the process, one of the new, low-cost challenger brands.

Online sales rise

Tesco’s online grocery sales also performed well in June, as the Covid-19 pandemic and subsequent lockdown took effect. The latest grocery market share figures from Kantar also provided a boost for the supermarket sector as a whole, as take-home sales increased 13.7% in the 12 weeks to 14 June versus the same period in 2019, while in the most recent four-week period covered, sales growth hit 18.9%.

Tesco recorded the highest market share in the 12-week period to mid-June, at 26.9%, just off the 27.3% for the same time last year. In terms of its rivals, Sainsbury's had a market share of 14.9%, Asda 13.9%, Morrisons 10.1% and Aldi 7.5% respectively.

One in five British households shopped online in the four weeks to 14 June. Supermarket footfall is now also increasing as lockdown measures ease. Some 19m more trips were made over the last four weeks compared with May. Customers are also buying more than they usually do, spending 42% more per trip in June. And with pubs and restaurants still closed until 4 July, alcohol sales also continued to boom, up 43%.

Tesco aims to get back to basics

Last week, Tesco confirmed it has sold off its Polish business for £181 million, to Danish retailer Salling Group. The asset sale included a total of 301 stores. As far as its Central Europe business is concerned, Tesco wants to focus on Hungry, the Czech Republic and Slovakia, which it views as having the greatest growth potential. The group also disposed of its businesses in Thailand and Malaysia in March, as it aims to simplify its business operations as part of a wider restructuring plan, to help get back to basics.

Tesco releases its Q1 trading update at 7am on Friday 26 June.


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