Tesco's bumper Christmas trading is reflect in supermarket's share price

Despite reporting a robust festive trading period, Tesco shares fell by two per cent in early deals this morning. The retailer revealed that food sales increased by 4.7 per cent in the six weeks leading up to January 4, with fresh food making a "particularly strong contribution".

This is more than double the market average of 2.1 per cent. According to Kantar, sales totalled £10,492m in the 12 weeks to December 29, nearly twice as much as its closest competitor, Sainsbury’s, as reported by City AM.

Tesco has been on an upward trajectory in recent years, and this is another feather in its cap. The supermarket's market share rose to 28.5 per cent in the golden quarter, up from 27.7 per cent last year, marking its highest market share since 2016.

Chief executive Ken Murphy attributed Tesco's strong performance to its focus on investment, stating it has positioned itself as "positioning Tesco as the UK’s cheapest full-line grocer for over two years [and] improving quality across all our ranges".

He added: "We invested to bring the best value, quality and service to everyone, no matter how or where they shopped with us."

"As a result, we delivered our biggest ever Christmas, with continued market share growth and switching gains."

Tesco reiterated its upgraded guidance of retail adjusted operating profit for the 2024/25 financial year of around £2.9bn. In April, the company announced that its adjusted operating profit had grown by almost 13 per cent to £2.93bn for the year to February.

Jocelyn Paulley, co-head of retail & leisure at law firm Gowling WLG, commented on the company's market position, noting that Tesco "remains at the head of the table when it comes to the UK grocery market with cuts to its food prices helping to drive strong sales over the festive period while food and drink inflation has continued to ease the cost-of-living concerns of shoppers".

She remarked on the competition from discounters, stating: "Aldi and Lidl will have undoubtedly been a threat to the retailer as both supermarkets continue to expand and capitalise on the affordable pricing they offer, but Tesco has remained resilient."

She highlighted Tesco's strategies for maintaining market share: "Its Aldi price matching and increased offers for Tesco Clubcard members has ensured it hasn’t lost sales to the German rivals and has been able to consistently keep growing its market share."

Looking ahead, she expressed optimism for the company's performance: "Going into the last quarter, shareholders will be confident Christmas hasn’t come early, and the retailer will end the year strongly."

Tesco is bracing for a significant rise in costs due to tax changes, with a £1bn increase in national insurance expenses projected over the next four years, which equates to about nine per cent of its latest profit figure. Despite this, the company is considered to have 'The strongest balance sheet in the sector'.

While Tesco may see lower fuel prices and reduced tobacco demand, investment analyst at RBC Brewin Dolphin John Moore suggested these factors are unlikely to dent the supermarket giant's robust standing. He asserted: "Tesco remains in a really good position with the strongest balance sheet in the sector, in stark contrast to others – particularly Asda and Morrisons, where debt is a challenge."