Tesco said a drive to lower prices for customers had boosted its quarterly sales, in an ominous warning for rivals three years after Britain's biggest retailer embarked on a turnaround programme.
Tesco, which was forced to rebuild after a 2014 accounting scandal capped a downturn in trading, said a move to lower prices on fresh food brands towards the end of its first quarter reflected a growing confidence in its performance.
Sales In Line With Forecasts
The lower prices, plus a relaunch of its own-brand products, helped the group to counter adverse weather and post first-quarter underlying sales in its home market up 2.1%, in line with forecasts.
"Our growth plans are on track and we are pleased with the momentum in the business," chief executive Dave Lewis said. "We remain well-placed to serve our customers better and deliver on our medium-term financial ambitions."
The lower prices are likely to be welcomed by customers in Britain where a string of retailers have struggled in a tough market.
Britain's supermarket sector has been upended in recent years by the rapid growth of discount groups Aldi and Lidl and the growing popularity of online sales, forcing traditional groups Tesco, Sainsbury's, Walmart's Asda and Morrisons to work harder.
Larger Competition Looms
As part of Tesco's recovery it has bought wholesaler Booker for £4 billion to expand into supplying restaurants, cafés and local shops. Now it is having to confront the prospect of a larger competitor after Sainsbury's announced a deal to buy Asda.
Sainsbury's' proposed £7.3 billion takeover of Walmart's Asda would push Tesco down into second place, posing a serious threat to the group.
Lewis declined to comment on the takeover, merely stating that Tesco would submit its views to the competition regulator in due course.
Booker's like-for-like sales rose 14.3 percent, including tobacco, partly reflecting new business wins.
As a group, underlying sales growth was 1.8 percent, its strongest quarterly performance since 2011.
"Our growth plans are on track and we are pleased with the momentum in the business," said Lewis, who joined Tesco in 2014 shortly before the accounting scandal was uncovered.
Prior to Friday's update analysts were on average forecasting a group operating profit before exceptional items for the 2018-19 year of £2.092 billion, up from £1.644 billion in 2017-18, according to Reuters data.
Analysts point out that earnings scenarios in Tesco's latest management long term incentive plan (LTIP) to 2021 are much higher than consensus expectations.
Tesco's trading update was published ahead of its annual shareholders' meeting later on Friday, where Lewis could face some flak over his near 5 million pounds 2017-18 pay package, labelled 'excessive' by shareholder advisory group Pirc.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
