Sales growth forecast for Tesco despite inflation rise

TESCO is expected to reveal a further pick-up in sales growth in half-year results on Wednesday as its recovery gathers pace, despite the tightening squeeze on shoppers from Brexit-fuelled inflation.

The UK’s biggest supermarket is set to show like-for-like sales growth of 2.5% in its second quarter, against 2.3% in the previous three months, according to analysts at Jefferies.

Bernstein experts predict sales growth could even hit 3.1% in the second quarter.

This would mark its seventh quarter in a row of positive sales momentum as the group continues to reap the rewards of offering customers lower prices in the face of rising inflation.

The results come as Tesco is awaiting the results of an indepth competition probe into its planned £3.7bn takeover of wholesale giant Booker, with provisional findings due from the Competition & Markets Authority next month and a final decision in December.

Tesco’s UK trading profit will be watched closely for the impact of its efforts to keep prices low.

Recent industry figures from Kantar Worldpanel showed Tesco’s sales rose 2.7% in the 12 weeks to September 10, although it saw its market share squeezed by 0.3 percentage points to 27.8%.

Sales will have been supported by rising prices, with Kantar saying like-for-like grocery inflation now stands at 3.2%.

But Tesco has been working with suppliers to protect customers from inflationary pressures and pledged shoppers will see further price reductions, focused on fresh food and healthy products.

Retail analyst Bruno Monteyne at Bernstein said Tesco’s value Farm Brands ranges have been helping lead a fightback against discounters Aldi and Lidi.

He said this was highlighted in Aldi’s latest set of results on Monday, which revealed profits slipping by 17% to £211.3m in 2016.

Mr Monteyne said: “The profit drop reflects the success Tesco has had, in particular with Farm Brands during 2016.

“This has put pressure on pricing in Aldi’s core product range and encouraged customers back to Tesco.”

Half-year earnings are set to show further progress on an underlying basis, with Jefferies pencilling in a 16% surge to £452m for the UK and Ireland business.

They are also expecting groupwide underlying pre-tax profits to rise 36% to £477m.

Tesco has been cutting costs in line with rivals to help protect its margins amid stiff competition in the sector.

It is axing 1,200 roles at its head office and closing its call centre in Cardiff with the loss of 1,100 jobs as part of the cost savings drive.