For a while now the supermarket sector has been a tough one, something that’s only been exacerbated by the UK’s rapidly rising inflation and falling real wages. Tesco (LON:TSCO) hasn’t been immune to these issues, falling from a 2017 starting price of £2.06 to a 9-month low of £1.65 towards the end of June. Things have admittedly improved a bit since then, with the supermarket climbing back to a current trading price of £1.86.
To be fair to Tesco, its financials have held up throughout most of the year. January’s update impressed, with a 1.5% rise in third quarter comparable sales alongside a 0.7% rise in like-for-likes over the festive period. Just over a fortnight later Tesco announced it was buying Booker Group (LON:BOK) – owner of Premier, Budgens and Londis – for £3.7 billion, a move that, in its own words, would create the ‘UK’s leading food business’.
After an initial spike, investors’ ambivalence about the deal caused the stock to drift lower in the following months, only for its decline to accelerate with mid-April’s full year results. Despite posting a 1% jump in like-for-like sales and a 30% surge in operating profit to £1.28 billion, a Serious Fraud Office fine-hit 28% plunge in pre-tax profit to £145 million and concerns surrounding ‘pressure in terms of pricing’ dragged Tesco below the £1.80 mark.
Having bounced back (slightly), the supermarket took another hit on June 16th, which happened to be the day of its first quarter report. UK like-for-like sales smashed estimates at 2.3%, with the group figure at 1.0%, easing fears surrounding the impact of inflation.
However, this strong start to the year was overshadowed by the news that Amazon (NASDAQ:AMZN) was buying Whole Foods for $13.7 billion. This sent a shiver through the UK supermarket sector, taking Tesco 8% lower in a single session and eventually leading to its aforementioned 9 month nadir.
In terms of next Wednesday’s half year update, investors will want to see Tesco maintain the kind of growth it saw in Q1. Luckily last month’s figures from Kantar Worldpanel suggest that’ll be the case, with Tesco’s sales up 3% for the 12 weeks ending 13th August.
Tesco PLC has a consensus rating of ‘Hold’ with an average target price of £1.93.
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