Tesco's Q1 could see sales trends deteriorate further, says Oriel

2nd Jun 2014 09:05

The negative trend of UK like-for-like (LFL) sales at supermarket giant Tesco is likely to have worsened in its first quarter, analysts at Oriel Securities said on Monday.They kept a 'hold' rating on the stock with a target price of 300p."Those looking for Tesco's first quarter to offer a sign of life in UK food retail are likely to be disappointed. -4% LFL is on the cards and if there are no signs that things are picking up, another downgrade is entirely possible," the broker said. This compares with a decline in UK LFL sales of 3.5% in the fourth quarter of the previous financial year ending February 2014.What's more, Oriel said that the estimated 4% UK LFL decline "may be at the optimistic end of the spectrum", according to recent industry data from Kantar."Our forecast is for -3% LFL in the first half, implying a decent improvement in fortunes in the second quarter. Should there be no sign that the exit rate of LFL was getting better, then clearly these first-half forecasts will be under pressure."The broker said that inflation has "ceased to be a factor in UK food retailing" given the recent wave of price cuts across the industry. "That's good news for customers, but bad news for 'Big 4' top lines", it said."The near-term direction of the shares does not really depend on Wednesday's statement. Management has to take firm action to grip the situation in the UK, which should not be allowed to drift any further. However we do not expect any news of a firm plan with the [update], so further sideways/downwards share price movement is likely."Tesco was trading 0.8% lower at 301.05p by 09:39 on Monday.BC