High street retailers helped keep the FTSE 100 index buoyant on Tuesday after the largest UK retailer’s sales figures suggested it is regaining market share. Supermarket giant Tesco posted an increase of 4.3% in UK like-for-like sales excluding fuel and VAT in the first quarter, meeting market expectations and renewing confidence that the retail industry is heading in the right direction.
In late morning deals, Tesco shares led the retail sector higher and outperformed the broader market with a gain of 1.9% to 362.7p. Rivals Wm Morrison and J Sainsbury were also in demand on the positive read-across, taking on 1.5% to 247p and 1.3% to 332.5p, respectively. In the wider retail space, Home Retail Group ticked up 1.7% to 262p. Retail sector gains helped push the FTSE 100 index 0.4% higher to 4,341.0 by 11.00am.
Tesco posted a 12.6% rise in group sales excluding fuel for the 13 weeks to May 30, with International sales up 20.1% and Asia sales jumping 43.8%—both helped by favourable exchange rates and acquisitions.
Analyst reactions to the update were broadly positive, with the words “robust”, “reassuring”, “upbeat” and “strong” featuring heavily on the telephone lines this morning.
“Tesco results added weight to the sentiment that it may be regaining the ground lost to cheaper budget rivals Morrison and Asda,” market strategist Joshua Raymond at City Index said. “The results show that Tesco is in line with expectations and has strong sales numbers, giving shareholders confidence that things are heading in the right direction after some early recessionary troubles,” Raymond added.
Analysts at Credit Suisse said the first quarter figures act as “further evidence that [Tesco’s] absolute performance remains very robust" and repeated their Outperform rating on the stock.
Charles Stanley told clients that although Sainsbury and Morrison are likely to remain in ‘recovery mode’ for a while to come, having raised their games significantly after years of underperformance, it believes Tesco’s long term earnings growth prospects remain the best in the sector, given significant growth potential in Retailing Services and International. Tesco shares’ undemanding valuation means the stockbroker’s recommendation remains Accumulate, while its forecasts are likely to remain unchanged.
Sainsbury will report its own first quarter sales results tomorrow (June 17), when analysts will be looking for like-for-like growth in the region of 7.3% for the 12 weeks to June 13.
Not all high street stocks were in demand, however. Hotelier and restaurant operator Whitbread traded down 1.1% at 841.5p in morning deals after the owner of Costa reported disappointing figures from its Premier Inn business and said the outlook remains challenging.
Stockbroker KBC Peel Hunt said, in reaction to Whitbread’s number: “As expected, even a business model as impressive and well managed as Premier Inn is finding life difficult in the current environment.” The analyst added that the underperformance seen by the Whitbread shares may have further to run and repeated his Sell recommendation.
