Tesco looks to build on strong festive period with upcoming full year results
Signs of weakening inflation and better wage growth offer hope for improved Tesco share price performance.
Tesco looks to build on strong festive period with upcoming full year results
Signs of weakening inflation and better wage growth offer hope for improved performance.
Tesco looks to build on strong festive period with upcoming full year results
In January UK supermarket giant Tesco raised its profit forecast for the full 2023-24 financial year on the back of better-than-expected Christmas trading results. Tesco now expects its retail operating profit to come in at £2.75 billion for the full year, exceeding its previous guidance range of £2.4 billion to £2.5 billion.
The upgraded guidance comes after Tesco reported a 7.9% rise in sales over the six-week festive trading period encompassing Black Friday, Christmas and New Year. This robust performance was driven by strong demand for Tesco's fresh food ranges and premium 'Finest' products, as shoppers treated themselves over the holidays while also grappling with a lingering cost-of-living crisis.
To remain competitive on pricing with discount chains like Aldi and Lidl, Tesco cut prices on nearly 2,700 mainly own-brand products. This strategy helped the supermarket giant achieve a 9.2% jump in sales of its own-brand ranges over Christmas, hoping to also increase its market share. Alongside premium products, Tesco's own brands have proven popular with cost-conscious shoppers seeking value.
As the UK's largest grocer by market share, Tesco is often viewed as a bellwether for wider consumer spending and confidence levels. Its recent trading update points towards resilient consumer demand over Christmas, despite many households facing financial pressures even though inflation continues to diminish from last year’s 11.1% lofty heights.
However, industry experts warn that consumer spending may be lacklustre in 2024 as energy bills and mortgage costs remain at elevated levels at a time when the UK economy is in a technical recession.
Beyond the numbers, Tesco made headlines this week with a new sustainability initiative trialled across a handful of stores. The scheme aims to cut unnecessary plastic waste from F&F clothing sales by giving shoppers the option to purchase a hanger for 10p when buying F&F items. Otherwise, hangers are left in-store to be reused.
If rolled out more widely, this small but meaningful step could significantly reduce single-use plastics from Tesco's operations. It may also boost the supermarket's eco-credentials with ethically minded shoppers.
How to trade Tesco’s first half results
Tesco, the United Kingdom-based multinational groceries and general merchandise retailer, is set to release its full year 2023 results on 10 April 2024.
What is ‘The Street’s’ expectation for the FY results?
‘The Street’ expectations for the upcoming results are as follows:
- Revenue of £68,844 billion : +4.7% year-on-year (YoY)
- Gross profit margin: 26.25% versus 7.23% (February 2023 FY results)
- Earnings per share (EPS) : 23.86 pence : +9.2% (YoY)
LSEG data shows a consensus analyst rating of ‘buy’ for Tesco – 3 strong buy, 8 buy, 3 hold and 1 sell, with the median of estimates suggesting a long-term price target of 328.17 pence for the share, roughly 14% higher than the current price (as of 5 April 2024).
Tesco technical outlook
The Tesco share price has slightly underperformed the FTSE 100 by falling close to 2% year-to-date whereas the FTSE 100 rose by the same amount.
Tesco versus FTSE 100 comparison chart
The Tesco share price, which in January came very close to its 2022 peak at 304.1p, did so again in March by reaching the psychological 300p mark before being rejected by it.
Tesco Weekly Chart
The May 2023 high at 285.3p is now back in the picture, as is the October 2023 high at 283.6p. There the current slide in the Tesco share price may level off.
From a medium-term perspective, as long as the Tesco share price stays above its October 2022-to-April 2024 uptrend line at 277p, the overall bias remains bullish.
Only a fall through the February-to-March lows at 272.8p to 272.3p would lead us to question the validity of the medium-term uptrend.
Tesco Daily Chart
This week’s 3.5% drop in the Tesco share price amid general market risk-off sentiment has taken it back to the 55-day simple moving average (SMA) at 286.6p with it being on track for its fifth straight day of declining prices.
Further minor support sits at the 20 March 284.2p low.
For the medium-term uptrend to resume, ideally a rise above the March peak at 300.1p would need to be seen.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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