Every little helps: Tesco sales down less than expected in first quarter

Tesco, which endured a horrendous 18 months marred by profit warnings, a record statutory loss and an accounting scandal, said sales at British stores open for more than a year fell 1.3 per cent over the 13 weeks to May 30.

Tesco attributed the outcome to lower prices, better product availability and improved customer service, which it said had resulted in more people buying more goods in greater volume, albeit at lower prices.

The first-quarter decline also marks an improvement on the 1.7 per cent fall recorded in the fourth quarter of its previous financial year.

“Whilst the market is still challenging and volatility is likely to remain a feature of short-term performance, these first-quarter results represent another step in the right direction,” chief executive Dave Lewis said.

“We do feel we are more in control than perhaps we were a year ago and this is another step in the right direction, but nobody ever said this was going to be quick or easy.”

Mr Lewis, a former Unilever executive who was brought in last September to lead a turnaround in the company, is cutting costs and selling assets as he seeks to reduce Tesco’s debts, get back its investment-grade credit rating and re-build the firm’s credibility after the damaging year.

Bruno Monteyne, analyst at Bernstein, said the first quarter performance “confounds the commentators who expected a further step back” and is a vast improvement on the worst levels of 2014-15.

He said the update puts Tesco at the top of the Big Four grocers for UK like-for-like sales, beating Sainsbury’s (-2.1 per cent), Bradford-based Morrisons (‑2.9 per cent) and Leeds-based Asda (-3.9 per cent).

Mr Monteyne added: “At the full year results presentation, Dave Lewis warned that the recovery would be bumpy but we are already seeing good progress with UK like for likes continuing to see sequential improvements.

“We believe that what remains of negative like for like are the result of UK wide deflation and Tesco’s beyond deflation price investment in fast selling branded goods; therefore the path should be set for positive like for likes in the quarters to come.”

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said “one swallow does not make a summer, but every little helps as Tesco seems to have stemmed some of its recent declines in this quarter”.

He added: “The like-for-like sales numbers generally still remain in negative territory, but there are nonetheless signs of progress, not least of which seems to be a softening of customer disapproval towards the company.

“Tesco is restructuring the entirety of the business, including a renewed focus on the core UK market as well as the consolidation of the central European structure.

“Meanwhile, the Asian operations are also showing signs of life, although the market is awaiting an official update on the destiny of the South Korean arm.

“Less positively, the lack of a dividend for the foreseeable future is prudent but disappointing, whilst the financial metrics which are not mentioned in a trading statement remain a spectre in the background.

“Despite some reasonable strength in the share price performance in the year to date, Tesco shares have dropped 24 per cent over the last year, as compared to a 1 per cent hike for the wider FTSE 100.

“Until such time as a sustained recovery can be illustrated, the market consensus of the company as a hold is likely to remain intact.”

The trading update comes ahead of its annual shareholders’ meeting which could turn into a stormy affair.

The meeting is the first chance for investors to quiz the board directly since the accounting scandal, which related to wrongly booking payments from suppliers, broke in September.

Shareholders could revolt over a £1.2m payoff to former chief executive Philip Clarke, who was sacked in July, and a £1m payout to former finance chief Laurie McIlwee, who resigned in April last year.