Chain gains from CEO's plan
Tesco reports strongest quarter for seven years
UK like-for-like sales rose 2.3% in the 13 weeks to 27 May – a sixth straight quarter of growth and ahead of expectations. Group like-for-like sales rose 1%.
Analysts were positive about the statement but warned that the squeeze on consumers could see many return to budget chains.
Chief executive Dave Lewi, however, has instigated his own price cuts to combat the threat from Aldi and Lidl.
He said: “This is a good start to the year. We are confident in our plans to create long-term, sustainable value for our key stakeholders and to deliver on the ambitions we have set out.”
Lewis has led a return to growth after Tesco suffered from a combination of greater competition from rivals and an accounting scandal in 2014.
He has focused on lower prices, streamlining the product range, improving customer service and supplier relationships.
Shares in Tesco have risen by almost a fifth on this time last year although they are lower on the year to date as investors have become concerned over a deteriorating consumer environment in Britain.
UK retail sales fell in May and earnings after inflation shrank at the fastest pace since 2014.
In January Tesco agreed to buy wholesaler Booker for £3.7 billion.
John Ibbotson of Retail Vision said: “Tesco has delivered a corker in its core UK market.
“Food, and fresh food in particular, is firing on all cylinders and that’s a huge shot across the bows for its competitors, in particular Morrisons.
“With inflation rising sharply, Tesco has used its immense buying power to keep prices lower for its customers. Against this inflationary backdrop, the numbers are all the more remarkable.
“But the toxic combination of rising inflation and low wage growth remains a major threat.
“As inflation continues to erode people’s spending power, more and more of Tesco’s customers could be driven back to the discounters, Aldi and Lidl.
“What’s particularly encouraging is that Dave Lewis is acutely aware of this and knows that nothing can be taken for granted.
“He is sticking religiously to the basics of grocery, which is delivering a robust food proposition, keeping keeping prices low and putting a massive focus on customer service.
“Tesco’s looming merger with Booker could prove a distraction, especially as the Competition and Markets Authority starts its review, but if it goes ahead the deal will further cement Tesco’s comeback.”