Tesco remains upeat after mediocre numbers

Britain’s largest supermarket group Tesco remains upbeat about its prospects despite only modest sales growth in the first three months of the year.

Shares were trading 1.95p, or 0.5%, lower at 389.7p as this morning's update showed disappointing progress in the group's Asian business.

The group’s chief executive Terry Leahy who is to step down next March said: ‘The long-term global recovery is well underway. We're in good shape and well-positioned to deliver further growth as the economic environment continues to improve.’

Tesco reiterated its forecast that sales will grow 2-3% in the full year on a same selling space basis.

But for now the impact of falling food prices and oil prices is still making itself felt while political disruption meant international sales growth failed to match expectations.

Tesco reported UK sales (ex  fuel and VAT) rose just 0.1% and said international like-for-like sales were slightly negative in Asia and slightly positive in Europe.

Gillian Hilditch, an analyst at JP Morgan, said: ‘International sales were perhaps slightly below market expectations,. This included, however, some considerable disruption in Asia due to the curfew in Thailand as well as the Korean situations.’

Sales are believed to have since recovered

Hilditch is not worried by what seems to be lacklustre first quarter results, saying the first three months were expected to mark the low point of the year due very high food inflation last year.

‘The impact from fuel, however, was not anticipated,’ she said but added she is pleased Tesco reiterated its guidance for full year sales growth.

Fraser Razan at Nomura is less optimistic and has cut his earnings forecasts and price target to reflect a more conservative view of sales growth this year.

He is now looking for 2.5% growth versus 3.9% previously and as cut is target price to 495p from 526p.