Why did Tesco (TSCO) shares drop despite improved full-year guidance?

Highlights 

• Tesco PLC’s shares fell over 1.5 per cent on Thursday, despite increasing its earnings estimates following a strong Christmas performance.
• Its group retail sales improved by 3.2 per cent during Christmas on a 1-year LFL basis and higher by 8.7 per cent on a 2-year LFL basis.
• Its full-year retail operating profit is now forecasted to be a little above the top end of the group’s earlier forecast range of £2.5 billion to £2.6 billion.

Supermarket major Tesco PLC’s (LON: TSCO) shares fell over 1.5 per cent on Thursday despite increasing its earnings estimates after reporting a strong Christmas trading performance.

Tesco’s Q3 and Christmas trading statement 2021/22

UK & ROI performance: The group’s UK & ROI sales performance (excluding VAT and fuel) increased by 2.3 per cent in Q3 2021/22 on a 1 year like-for-like (LFL) basis and were higher by 8.2 per cent on a 2-year LFL.

Its UK & ROI Christmas sales rose by 2.7 per cent 1-year LFL basis and by 9.2 per cent on a 2-year LFL basis. And its UK & ROI sales for the 19 weeks ended on 8 January 2022 rose by 2.4 per cent on a 1-year LFL and was up by 8.6 per cent on a 2-year LFL basis.

Group retail performance: The group’s Q3 retail sales performance 1-year LFL was up by 2.4 per cent and 7.9 per cent on a 2-year LFL basis.

It was higher by 3.2 per cent during Christmas on a 1-year LFL basis and higher by 8.7 per cent on a 2-year LFL basis.

And for the 19-week trading period, sales rose by 2.6 per cent on a 1-year LFL basis and were higher by 8.2 per cent on a 2-year LFL basis.

The group’s CEO, Ken Murphy, said the group outperformed the market, and increased its market share as well as strengthened Tesco’s value position. This strong result came as the group focused on investing towards protecting the availability and providing great value despite being faced with dual headwinds of cost pressures and supply-chain related issues.

©2022 Kalkine Media®

©2022 Kalkine Media®

Improved full year forward guidance

The group now estimates its full-year retail operating profit to a little above the top end of the group’s earlier forecast range due to strong performance. It had previously projected its FY retail operating profit to be between £2.5 billion and £2.6 billion.

Furthermore, the group anticipates its full-year bank operating profit to now be in the range of £160 million and £200 million. This guidance comes due to having an improved economic forecast on its expected credit losses provision.

Tesco PLC (LON: TSCO) share price performance

The group’s shares were lower by 1.59 per cent, trading at GBX 288.05 on 13 January 2022 at 09:30 AM BST. The group’s market cap stood at £22,392.48 million, and its one-year return was at 19.48 per cent as of date.

Meanwhile, the FTSE 100 index was at 7,542.14, down by 0.13 per cent. At the time of writing, the group was among one of the biggest fallers on the FTSE 100 index following the news.