Tesco Q1 sales growth slows as sentiment in UK muted

● UK like-for-like sales growth sees decrease to 0.4% ● Analyst believes group ‘well placed for months ahead’

Supermarket giant Tesco has seen UK sales growth slow in its first quarter – while its Edinburgh-based banking arm saw a drop in revenues.

The overall group reported UK like-for-like sales growth of 0.4 per cent for the 13 weeks to 25 May. It said it outperformed a “subdued” overall grocery market, but the result marks a sharp slowdown from the 1.7 per cent growth in the previous three months.

Total UK sales were also under pressure, down 0.4 per cent as it was hit by its decision to close non-food arm Tesco Direct last July –which dragged sales growth by 0.8 per cent.

Across the UK and Ireland, comparable sales lifted 0.8 per cent, down from 1.9 per cent in the previous three months.

Chief executive Dave Lewis said that alongside weaker consumer sentiment, there had also been some “challenges” in the quarter around weather and tough comparisons from a year earlier, when trade was boosted by events such as the royal wedding.

He added: “There’s some weakness in consumer sentiment in the UK. Clearly part of that is down to the political situation. The other element is the weather.”

Volatile weather in the UK in recent months has hit sales of seasonal products, such as clothing, the group said.

But UK online grocery sales proved resilient, up 7 per cent in the quarter, while total group like-for-like sales edged 0.2 per cent higher.

Tesco Bank saw a 1.9 per cent drop in revenues to £270 million. On its recent decision to put its mortgage business up for sale, affecting 23,000 customers who collect Tesco Clubcard points through the home loans, Tesco said the process was still ongoing.

It added that it was too early to comment on plans to offset any potential loss of Clubcard points to the borrowers.

Clive Black, retail expert at Shore Capital, warned that the second quarter may not offer much of a bounce-back for Tesco. “Tough comparatives and awful June weather may mean that the second quarter UK out-turn, at least, could be tougher,” he said.

But Arlene Ewing, investment manager at Brewin Dolphin, said that while sales growth was below some analysts’ expectations, “this is another relatively positive set of numbers”. She added: “The business has undergone a significant transformation programme and the results of that will take time to come through, but the green shoots of growth are there despite a ‘subdued’ wider UK groceries market.”

Ewing also noted that the figures come a day after Lidl’s news of plans to grow in London. “There’s a sense that the discounters’ growth in market share has been slowing as the more established players fight back. While that remains to be seen, Tesco looks well placed for the months ahead.”