Tesco (TSCO Stock) share price slips back despite raising guidance

The rise in the Tesco share price since the lows in March last year has continued to reflect the turnaround started by previous CEO Dave Lewis and continued by his predecessor Ken Murphy.

Since the dark days, a few years ago of the accounting scandal that saw the share price collapse to 19-year lows in 2016, it’s been a long road back, but at no time was Tesco in danger of losing its crown as the UK’s number 1 supermarket, although it has slipped from the market share levels above 30% it was sitting at a decade ago.

The last ten years has seen the sector of food retail face increasing competition from the discount retailers of Aldi and Lidl, who have seen their market share rise from a combined 4.4% in 2011 to 7.9% and 6.4% respectively now. 

Over the last 12 months Tesco has managed to grow its market share to 27.9%, from 27.3% as it consolidated its position, ahead of Sainsbury’s and Asda.

When it reported its H1 numbers Tesco was able to report a 2.6% rise in group sales excluding fuel to £27.3bn, up from £26.7bn the year before. For Q3 group sales have risen by 2.4% on a like for like basis compared to a year ago.

UK retail, unlike most of its peers, saw an increase of 0.2%, and though this was below expectations of 0.6%, this is still impressive when compared to the tough comparatives of last year, and on a 2-year basis this was higher by 6.9%.

Once again, its Ireland operation has proved to be the laggard with a 3.3% decline year on year, although on a two-year basis, sales are up by 7.8%.   

Its Booker operation stood out with an in excess of 16% increase in sales on both a 1- and 2-year basis, as the reopening of restaurants, cinemas, and bars, and catering helped to boost the numbers, despite the disruption in December.

As a result of the outperformance in Q3, Tesco said expectations for adjusted retail operating profits, which were revised up in the H1 numbers to between £2.5bn and £2.6bn, are now expected to come in slightly above that number. Shareholders seem a little less impressed, with the shares falling back in early trade. This seems a little churlish response but may have more to do with the fact that the shares are close to their highest levels in 11 months. It certainly doesn’t mean they can’t go higher longer term.

It's also been a decent quarter for Marks and Spencer share price, where we've also seen impressive gains, as well as some solid numbers today, largely because of a good performance in its food retail division, which saw a 19% rise in food sales.

Its general merchandise division, which for so long has been a drag has also put in a good performance, with clothing and home sales increasing 3.2%. It could be that the decision to allow third party retailers like FatFace and White Stuff to offer their products online under the “Brands” section has helped drive turnover here.

The decent performance in Q3 has prompted the retailer to upgrade its outlook, reinforcing the idea that while retail in both food and general is highly competitive, we are starting to see a good majority of traditional retailers adapting to the challengers posed by the pandemic and online shopping.

This is not before time, and is a very welcome development for shareholders as well.