Tesco's slight sales growth indicates things are still tough

As Tesco reports results that show difficulty remains in the UK Graham Spooner, investment adviser at The Share Centre, explains what this means for investors.

"The supermarket giant reported a 0.1% growth in UK like-for-like sales, excluding petrol and the impact of the VAT increase, for the 13 week period to 28 May. Although this is an improvement from the previous quarter, the minimal increase emphasises the continued difficulty in the UK. We expect this situation to remain for the short to medium term as there is no sign of a catalyst for significant improvement.

"The company's ‘Finest' range saw an increase of almost 10% in like-for-like sales indicating consumers feeling the squeeze are treating themselves at home rather than dining out. Overall food sales were promising with good growth in fresh prepared foods, meat, fish and poultry.  

"Investors seeking overseas exposure will be pleased to see strong growth in Asia and Europe. Business in Thailand performed well and this, along with expansion, saw sales in Asia rise by 8.6%. Weakness in Ireland offset the stronger growth in Central Europe and Turkey meaning like-for-like sales in the region rose by just 2%.   

"There are still uncertainties in the sector and other retailers have noted the continued challenges faced as a result of a cut in consumer spending. Although Tesco's core business is in the UK, international earnings is a key factor to the company's strength and is attractive for investors. Tesco remains our preferred play and we continue to recommend investors ‘buy' into any weakness in the share price for the long term."