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Tesco share price set for boost as UK sales top £10bn

Tesco set for sales boost

The Tesco share price has struggled to make any significant gains since reporting its full-year numbers in April, which is a little surprising when you look at how well management has managed to scale up the business to deal with the challenges posed by the pandemic. In early trading today Tesco's share price is down 1.8% to 227p.

Tesco share price held back by guidance

The underperformance in Tesco's share price may well have had something to do with the guidance, with management saying they expected sales volumes to decline as lockdown restrictions eased; however to offset those concerns, there was an expectation that costs would also fall as well.

One of the main growth areas for Tesco over these past 15 months has been online sales, which have seen a doubling of capacity to 1.5m slots per week over the past 12 months, while sales grew by 77%. In Q1 this demand remained high at 1.3m orders per week, with two-year sales growth of 81.6%.

Tesco's caution misplaced as sales rise

Today’s numbers also show that caution to have been slightly misplaced, as like-for-like sales in the UK rose 0.5%, and by 1.3% for the UK and Ireland. Group like-for-like sales rose to £13.36bn, with the UK contributing just over £10bn of that.

This performance is even more impressive when you consider that in Q1 last year demand soared from panic buying by customers of a range of tinned goods staples, as well as pasta, rice, flour and of course rather inexplicably, toilet rolls.

With management taking the decision to return £535m of business rates relief from the government, as well as forgoing this year’s rates relief, the supermarket giant is still having to absorb a sizeable increase in costs in terms of recruiting extra staff and safeguarding measures, which last year came in at £892m.

Booker sales boost

Also performing better in Q1 was Tesco-owned food wholesaler Booker, as demand from pubs, restaurants and cinemas reopening saw a pick up in sales, with catering like-for-like sales rising 68.1%, though this has to be set in the context of last year's comparatives and the timing of the first lockdown.

In terms of the outlook, management has continued to steer a cautious tone, reiterating the view from April as it kept the current guidance unchanged. Time will tell whether this will continue to hold back Tesco's share price.

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