Tesco shares drop despite bumper Christmas trading

Tesco shares dropped two per cent in early deals this morning despite the retailer reporting abumper festive trading period.

Food sales rose by 4.7 per cent in the six weeks to January 4, with a “particularly strong contribution” from fresh food, the grocer said.

That’s more than double the market average of 2.1 per cent.

Sales totalled £10.5bn in the 12 weeks to December 29, according to Kantar – nearly twice as much as its closest competitor, Sainsbury’s.

It’s another gold star for the supermarket, which has been going from strength to strength in the last few years.

Tesco had a market share of 28.5 per cent in the golden quarter, up from 27.7 per cent last year. It’s the highest market share the grocer has enjoyed since 2016.

Chief executive Ken Murphy said Tesco’s strong performance reflects its focus on investment, “positioning Tesco as the UK’s cheapest full-line grocer for over two years [and] improving quality across all our ranges”.

“We invested to bring the best value, quality and service to everyone, no matter how or where they shopped with us.

“As a result, we delivered our biggest ever Christmas, with continued market share growth and switching gains,” Murphy said.

Tesco reiterated its upgraded guidance of retail adjusted operating profit for the 2024/25 financial year of around £2.9bn.

The firm revealed in April that its adjusted operating profit grew by almost 13 per cent to £2.93bn for the year to February.

Tesco remains ‘resilient’ amid Aldi and Lidl rivalry

Jocelyn Paulley, co-head of retail & leisure at law firm Gowling WLG, said Tesco “remains at the head of the table when it comes to the UK grocery market with cuts to its food prices helping to drive strong sales over the festive period while food and drink inflation has continued to ease the cost-of-living concerns of shoppers”.

She added: “Aldi and Lidl will have undoubtedly been a threat to the retailer as both supermarkets continue to expand and capitalise on the affordable pricing they offer, but Tesco has remained resilient.

“Its Aldi price matching and increased offers for Tesco Clubcard members has ensured it hasn’t lost sales to the German rivals and has been able to consistently keep growing its market share.

“Going into the last quarter, shareholders will be confident Christmas hasn’t come early, and the retailer will end the year strongly.”

Tesco faces a £1bn increase in national insurance costs over the next four years due to higher taxes on employees’ wages announced in the Autumn budget, about nine per cent of its latest profit figure.

‘The strongest balance sheet in the sector’

While Tesco faces lower fuel prices and lower demand for tobacco, investment analyst at RBC Brewin Dolphin John Moore suggested these won’t affect Tesco’s overall position.

“Tesco remains in a really good position with the strongest balance sheet in the sector, in stark contrast to others – particularly Asda and Morrisons, where debt is a challenge.

“Retail is likely to see price inflation remain high given the impact of National Insurance increases, but Tesco is well placed to deal with this environment,” Moore said.