Tesco shares: where next as CEO warns of ‘change in customer behaviour’
Inflation is stalking every corner of the UK economy as the Bank of England warns it may now push further out to 11%. Today Tesco chief executive, Ken Murphy, warned of a change in customers’ attitude to spending.
Tesco trading update
There's been a first quarter (Q1) trading update this morning from Tesco, the UK's largest supermarket group, and it makes for interesting reading, not for the numbers themselves, but more as a result of a statement from the chief executive.
Let's take a look at what the statement said in terms of the sales figures. Expectations have been for a drop of 0.5% in sales. In fact, it came out with a decline of 1.5%. So that itself is worse than had been expected.
But, whilst the company says it is very difficult to separate from the significant impact of lapping last year's lockdowns, the company is seeing some early indications of changing customer behaviour as a result of the inflationary environment.
The chief executive is highlighting this because he feels that this is the really big indicator as to future trading. Customers are facing unprecedented increases in the cost of living, according to the statement. And it is therefore even more important that we work with our supplier partners to mitigate as much inflation as possible. In other words, try to screw them down in trying to get their prices down, which, of course is even more difficult because they're incurring higher costs as well.
Tesco share price
But the naked truth is, I think if we look at the share price chart of Tesco, and you can see this because we've seen this drop since the recent highs back on the 28th January all the way up here at 304, here we are now at 248.
The bottom line is, people are now having to make some interesting decisions. And obviously people would far rather feed their children than buy an extra pair of shoes, for example, so people are beginning now to be more selective about what they do with what little money they now have at the end of the month.
And they're choosing to concentrate on the must-haves rather than the luxury items that might otherwise have gone through the tills and Tesco would otherwise have benefited. So clearly, there are some headwinds ahead. It's not just Tesco it's every single area of the retail market.
We saw this yesterday with Boohoo and ASOS warning about the outlook for future profits, and Tesco pretty much doing the same sort of thing.
A warning shot to investors that things could creep up on them quite fast if they don't do something about it to try and mitigate this increase in costs. But whichever way you cut it, Tesco is finding the going tough.
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