Tesco faces slower first-quarter sales growth, says Citi

Tesco PLC (LSE:TSCO) is expected to report slower first-quarter sales growth next month as the supermarket group laps a period of unusually strong weather-driven demand, according to analysts at Citi.

The investment bank trimmed its forecast for the FTSE 100 grocer's UK like-for-like sales growth in Q1 of the current financial year to 2.2% from 4%, below market expectations of about 3%.

Citi said the weaker comparison largely reflected favourable weather conditions in the same period last year, which had boosted food sales across the sector.

In the last year to 28 February, a strong fourth quarter helped group LFL sales grow 3.5%, with the UK at 4.2%, Republic of Ireland 4.6%, wholesale arm Booker at 0.2%, and Central Europe at 2.2%.

Citi's analysts also cut expectations for Booker, Tesco’s wholesale arm, forecasting a 3.5% decline in like-for-like sales against previous expectations of a 1% fall.

The downgrade reflects the loss of a major national retail contract alongside tougher comparative figures.

Tesco’s RoI business is expected to deliver like-for-like growth of 3.2%, while central and eastern Europe sales are forecast to rise 1%.

Overall, Citi expects Tesco to report group retail like-for-like sales growth of 1.4% for the quarter, below wider market forecasts of about 3.1%.

Despite the softer sales outlook, Citi maintained its full-year earnings forecast and said Tesco remains on track to deliver operating profit of £3.28 billion, near the top end of the company’s £3-3.3 billion guidance range.

The broker kept its 'buy' rating and 545p price target unchanged, with the Q1 results scheduled for 18 June.