Shares of Tesco fell more than 5% on Thursday after the UK’s largest supermarket reported like-for-like sales growth that came in below market expectations, overshadowing a solid performance over the crucial Christmas trading period.
The retailer said the group’s like-for-like sales rose 3.1% in its third quarter, while sales over the Christmas period increased 2.4% year on year.
Both figures were below company-compiled consensus estimates of 3.6% and 3.4% respectively, according to RBC.
The miss weighed on investor sentiment despite signs of resilience in food spending.
Growth driven by food and market share gains
Tesco said sales in the 13 weeks to November 22 rose 4%, ahead of the Christmas rush, while festive demand helped lift its share of the UK grocery market.
According to Worldpanel data, Tesco’s market share increased to 28.7% in the three months to December 28 and climbed further to 29.4% during December, its highest level in more than a decade.
Food sales were up 5.2% over the Christmas period, driven by strong demand for fresh produce and party food.
Tesco chief executive Ken Murphy said he was “delighted” with the retailer’s Christmas performance, noting particularly strong growth in the Tesco Finest premium range, where sales jumped 13%.
The company said the robust festive trading meant it remained on track to deliver full-year operating profits at the upper end of its previously upgraded guidance of between £2.9 billion and £3.1 billion.
Tesco had raised its profit outlook in October following a steady first half.
Muted reaction despite festive boost
Despite the upbeat tone on profits, analysts were cautious on the overall results.
Kathleen Brooks, research director at XTB, said the numbers were not a “roaring success” given the shortfall against expectations earlier in the quarter.
She noted that while third-quarter like-for-like sales growth lagged forecasts, the pick-up over Christmas helped protect earnings and market share.
Online sales rose more than 11%, adding to the sense that Tesco remains well positioned despite a challenging consumer environment.
Brooks added that Tesco’s shares had been largely static in recent weeks as investors waited for a clearer catalyst, and that while the update may not excite markets immediately, it could support sentiment over time by showing the grocer can defend profits in a constrained economy.
“Tesco is up against higher expectations, so this light period of growth–and below-par contribution from its Booker segment–will be on investors’ minds,” Richard Hunter, head of markets at Interactive Investor, said.
“Also, the company didn’t increase its adjusted operating profit guidance, which was disappointing for investors,” he added.
Mixed consumer sentiment weighs on outlook
Murphy said UK consumer sentiment remained mixed, with a growing divide between households that were still spending freely and those under significant financial pressure.
“There’s no doubt that consumer sentiment is mixed,” he told reporters, adding that while many shoppers were counting every penny, resilient employment was helping to underpin spending.
He said consumers continued to prioritise food over discretionary items and still found room to enjoy Christmas.
That trend was echoed across the sector.
Marks & Spencer reported a 5.6% rise in underlying food sales over the Christmas quarter, but its clothing, home, and beauty division saw sales fall 2.9%.
Primark owner Associated British Foods said the UK clothing market was “difficult”, while Greggs warned of subdued consumer confidence and guided towards flat profits this year.
December’s solid food sales provided some relief for Britain’s major retailers, but analysts remain wary about the outlook.
Sticky inflation, cautious consumers, and intense competition are expected to continue shaping trading conditions into 2026.
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