Tesco's UK sales growth more than halves amid Iran war uncertainty

Tesco, the UK's largest retailer, reported a sharp slowdown in UK sales growth for the first quarter of its financial year, attributing the decline to ongoing uncertainty from the conflict in the Middle East and higher fuel prices that have dampened consumer confidence. Comparable sales rose just 1.8% to £13.4 billion in the three months to the end of May, a significant drop from the 4.2% growth recorded in the previous quarter and below the 2.3% forecast by analysts. The overall group sales increased by 1% to £16.8 billion, boosted by an 8.9% rise in online sales.

The company noted that exceptionally warm and sunny weather in the same period last year had inflated food and drink sales, creating a difficult comparison for this year's figures. Despite the slowdown, Tesco said it extended its price-matching pledge against German discounter Aldi to over 2,000 of its small Express stores and launched 520 new products. Chief Executive Ken Murphy expressed satisfaction with customer satisfaction improvements and the company's strategic positioning, acknowledging that the Middle East conflict has created ongoing uncertainty for many households.

Tesco's wholesale arm, Booker, experienced a 3.2% decline in sales, particularly affecting independent retailers and catering businesses amid tough high street conditions. The retailer reiterated its expectation to meet full-year profit forecasts, with analysts projecting £3.25 billion in profit for the current financial year. However, Tesco shares fell 2.4% in early trading following the announcement.

The results come after Tesco warned in April of a potential drop in annual profits, which would be the first since 2023. In the previous financial year ending 28 February, Tesco reported an 8.5% rise in profits to £2.4 billion and a 4.3% increase in sales to £66.6 billion, driven largely by strong UK performance.