1Q20 Trading Update Tesco reported a 1Q20 trading update for the 13 weeks ended May 25, 2019, with group comparable sales missing the consensus estimate. The highlights are as follows:

• Tesco’s group comparable sales grew 0.2% year over year, excluding fuel and VAT, missing the consensus estimate of 0.5% recorded by StreetAccount.
• The company grew group total sales 0.4% year over year at constant exchange rates to £98 billion (up 0.4% as reported).
• Tesco noted it delivered strong Easter performance across all formats.

Performance by Segment/Geography: UK & Ireland

• UK and Ireland comparable sales grew 0.8% year over year, excluding fuel and VAT, slower than the 1.9% growth in the previous quarter and in-line with the consensus estimate.
• UK and Ireland sales grew 1.3% year over year at constant exchange rates to £11.12 billion (up 1.2% as reported), compared to 14.6% growth in the previous quarter.
• UK comps were 0.4%, compared to 1.7% in the previous quarter and missing the consensus of 0.8%. UK sales fell 0.4% year over year at constant exchange rates to £9.09 billion. The company’s UK grocery segment outperformed the market in terms of sales and volume by 0.2% and 1.3%, respectively. Its fresh food segment outperformed the market in terms of volume in the prepared foods category by 2.4%, and bakery and dairy by 1.6%.
• UK online grocery sales grew 7.0% year over year, with collection accounting for more than 10% of total orders.
• Ireland comps were 1.3%, compared to a 0.4% slide in the previous quarter and ahead of the consensus of 0.9%. Ireland sales increased 2.7% year over year at constant exchange rates to £567 million, led by marketing and coupon initiatives to boost sales.
• Booker’s comparable sales grew by 3.1%, compared to 4.3% growth in the previous quarter and beating the consensus of 2.4%. Booker’s sales increased 12.4% year over year at constant exchange rates to £1.30 billion.

Central Europe

• Comparable sales fell 4.9%, excluding fuel and VAT, compared to a 3.0% decline in the previous quarter and below the consensus of a 1.9% decline.
• Sales fell 7.9% year over at constant exchange rates to £1.30 billion (down 10.8% as reported), compared to a 5.7% decline in the previous quarter.
• Declines in sales in Poland, store closures and two fewer trading days negatively impacted Central European sales by about 4 percentage points. Significantly cooler weather across the region further negatively impacted sales by up to 2 percentage points.

Asia

• Asia comparable sales grew 0.1%, excluding fuel and VAT, compared to a 3.0% decline in the previous quarter and ahead of the consensus of a 0.9% decline.
• Asia revenues increased 2.6% year over year at constant exchange rates to £1.24 billion (up 7.3% as reported), compared to a 0.7% decline in the previous quarter, led by stronger customer offerings.
• The company grew market share in Thailand, led by strong growth in the Bangkok area.

Tesco Bank

• Tesco Bank’s revenues fell 1.9% year over year at constant exchange rates to £270 million.

CEO Dave Lewis said:

We have had a strong start to the year, growing ahead of the UK market on both a volume and value basis. Our customer offer is more competitive than ever, with a wider choice of our “Exclusively at Tesco” products now available in more stores, helping to drive more than 10% sales growth across the range. Following a particularly good Easter, our “100 Years of Great Value” event in May proved very popular with more than 1.5 million customers benefiting from discounted club card prices.

Outlook In its FY19 results, Tesco offered the following guidance for fiscal 2020:

• Tesco is “comfortable” with consensus profit expectations.
• The company will focus on strengthening its balance sheet and delivering free cash flow.
• It expects to reach a dividend cover level of about two times earnings and has a target of a leverage range of 3 times to 2.5 times total debt to EBITDAR.

In FY20, the consensus estimates recorded by StreetAccount predict Tesco will report revenues of £64.9 billion, up 1.9% year over year and EPS of 17.0 pence, up 10.4% year over year.