Tesco is set to reveal whether the group has managed to overcome concerns over consumer sentiment and maintain its positive recent momentum when it delivers a trading update on Thursday, June 18. Shareholders hope the UK's largest supermarket chain will provide a clearer outlook on sales and profits for the current year.
Profit Warning and Iran Conflict
In April, Tesco warned that uncertainty linked to the Iran war was clouding its profit outlook. At that time, the company stressed it had not yet seen any impact on product availability or prices, excluding fuel, since the conflict began in late February. Two months later, investors are keen to understand how the crisis is unfolding, especially amid already shaky consumer confidence.
Value Strategy and Government Scrutiny
Tesco continues its value-focused strategy to maintain positive sales volumes, with significant investment in pricing, including price matching against rival Aldi. However, grocery retailers have faced government scrutiny over potential price increases and profit margins amid broader inflationary concerns.
Analysts highlight the plethora of challenges Tesco's leadership must tackle. Shore Capital's Clive Black said: "Tesco shares have come off recent highs in the face of challenging externalities; the feckless Labour Government toying with UK food price controls and notably contributing to weak British consumer confidence plus, closer to home, tough comparatives. We sense that Q1 trade will be sound but not effervescent, so sales mix, operating costs, where there are new pressures due to Iran, and productivity programmes take on importance."
Sales Growth Under Pressure
The analyst suggested that comparative sales growth for the current half-year could come under pressure compared with "excellent trading conditions" from spring and summer 2025. Shore Capital expects like-for-like sales volumes in the first quarter could be flat or "even slightly lower."
Despite sector pressure, analysts believe Tesco remains well-positioned due to its market dominance, which helps drive profitability. Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Tesco's huge scale should help it to negotiate hard with suppliers and keep prices competitive, giving them little reason to look elsewhere. If operations can be streamlined as expected, there could still be some upside to the group's cautious full-year guidance, which points to underlying operating profits of £3.0-3.3 billion."
