Tesco has reported a solid rise in sales over the crucial Christmas period, though the performance fell short of City expectations, triggering a sharp fall in its share price.
Festive Performance: Sales Growth Versus Expectations
The UK's largest supermarket chain said its sales in its home market increased by 3.2% in the six weeks to 3 January. This growth, however, was below the 3.9% rise that analysts had been hoping for. The pattern was repeated across the group, with sales in Central Europe rising by a modest 0.8%, roughly half the expected rate.
More notably, sales at its Booker wholesale arm fell by 2.1%, a significant disappointment against forecasts of a 0.8% increase. This mixed trading update led to Tesco's shares dropping by almost 5% in early Thursday trading.
Market Share Victory Amid Profit Focus
Despite the sales figures missing the mark, Tesco declared a strategic victory in the competitive grocery landscape. The retailer achieved its best Christmas market share in over a decade, with industry data from Worldpanel by Numerator showing it holds almost 29% of the market.
Chief Executive Ken Murphy stated the company had taken the most share from rival Asda, which has been struggling with falling sales. He attributed the slight slowdown in sales growth compared to the previous quarter to Tesco's aggressive strategy of keeping prices low for customers, a move that helped keep its inflation "materially lower" than the industry average.
The company confirmed it expects to deliver annual adjusted operating profit of around £3.1 billion, which is at the upper end of its previous guidance.
Leadership Confidence and Future Outlook
Ken Murphy expressed no concern over the sales aspect of the performance, explaining that Booker's weakness was largely down to poor trading in low-profit tobacco products. He emphasised that consumer resilience was good in the run-up to Christmas, with households determined to celebrate, albeit while "seeking great value without a shadow of a doubt".
Looking ahead, Murphy struck an optimistic tone for 2026, citing resilient employment as a key factor. He also addressed external pressures, stating Tesco was prepared for new worker protections and calling for a government revamp of what he deemed an unfair business rates system, despite Tesco not facing an increase under recent changes.
Analyst Aarin Chiekrie of Hargreaves Lansdown noted that while some were disappointed Tesco didn't raise profit guidance, the supermarket's enormous scale and supplier relationships leave it well-positioned to weather ongoing economic headwinds and retain its customer base through competitive pricing.
