Tesco (TSCO) results fall short of analyst expectations

Shares drop in early trading as a ‘subdued’ grocery market is blamed.

Article updated: 13 June 2019 12:00pm Author: Graham Spooner

  • Shares initially fell 1.7% in early trading.
  • Competition from Aldi and Lidl continues to impact group as it looks to win new customers.
  • Investors backing the management and their restructuring must be patient therefore we recommend a low to medium risk hold.

The first quarter trading update from Tesco reported like for like sales in its main UK market up by 0.4%, yet this falls short of analyst estimates and the shares reacted with a 1.7% fall in early morning trading. The CEO stated its grocery market was “subdued” but highlighted that the group was growing ahead of the UK market.

It’s not all doom and gloom for investors, who have seen shares rise by 18% year to date, still lower than five years ago, which is also complimented by a strong online performance and continued growth at Booker following the acquisition in 2017. However, the company remains cognisant of competition from the likes of Aldi and Lidl, who are continuing to win market share and are not making life any easier for Tesco who are desperately trying to win new customers. Add to that fierce price competition and promotions which are likely to remain a squeeze on margins.

Our View on Tesco - Hold

There is a defensive element to the shares, which in the current environment is a positive, but investors backing the management and their restructuring will have to be patient we would suggest a low to medium risk hold.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FSA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.