Tesco basks in the sun as sales surge - but boss warns Labour tax hikes are fuelling inflation
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Recent warm weather has given Tesco a boost as shoppers snap up its picnic food and summer clothing.
Britain’s largest supermarket said sales in the UK rose 5.1 per cent to £12.3billion in the 13 weeks to May 24.
‘The summer weather, the good weather, is definitely helpful,’ said chief executive Ken Murphy.
But with a supermarket price war raging, he warned the grocery market was ‘intensely competitive’.
And he said Labour’s tax increases were fuelling inflation.
‘There are definitely continued inflationary pressures on the market,’ said Murphy. ‘I think you’ve got to
look at things like the impact of all the new taxation and regulatory costs on the industry.’
Total sales across the Tesco business, which includes stores in Ireland and central Europe, rose 4.6 per cent to £16.4billion in the first quarter.
And its market share in the UK has risen to 28 per cent as its premium range drove sales up.
But Tesco stuck to profit guidance for the year of between £2.7billion and £3billion, given the fierce supermarket rivalry.
‘We’re seeing intense competition from all aspects of the market,’ said Murphy. ‘Our guidance reflects that and continues to reflect that.’
In April, Murphy warned that Tesco was ready to take a £400million hit to profits this year as the competition hots up.
Speaking yesterday, he said he was ‘pleased’ with the group’s performance as it attracted new customers by matching prices at Aldi on more than 600 items.
Customers are dining at home more and eating more fresh food, according to Murphy.
But supermarkets and their supply chains have had to grapple with higher cost pressures in the wake of measures introduced in Chancellor Rachel Reeves’s autumn Budget.
A sharp increase in employer National Insurance Contributions (NICs) and a big increase in the national minimum wage have hit businesses. Retailers face a £5billion higher bill after the Budget, according to the British Retail Consortium.
Tesco said it will pay an extra £235million in the current financial year as a result of the NICs hike.
The supermarket announced earlier this year that it would be cutting 400 jobs and Murphy has also refused to rule out further losses.
Rising commodity prices for goods such as cocoa, meat and poultry are also piling on the ‘greatest pressure’ to food prices, he said.
The supermarket is the ‘best-in-class player’ in UK food, said the Royal Bank of Canada’s analysts Manjari Dhar and Richard Chamberlain.
‘It has done well to gain market share in recent years, but we note a step up in competitiveness by some key peers may mean that further gains are more difficult to come by,’ the pair added.
Garry White, chief investment commentator at Charles Stanley, said: ‘Britain’s largest grocer has delivered a resilient performance despite a price war initiated by Asda and waning consumer confidence.’
Tesco shares rose 1.6 per cent, or 6.3p, to 391.6p yesterday.
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