(Bloomberg) -- Tesco (LON:TSCO) started the financial year on a downbeat note as the U.K.’s largest retailer said sales were held back by the political turmoil over the U.K.’s plan to leave the European Union.
Comparable sales in the U.K. rose 0.4% in the first quarter, half the rate analysts expected. The latest results show that the supermarket operator is not immune to the challenges facing other British retailers, which are getting squeezed by competition from discounters, the rise of online shopping and side effects of Brexit.
“The subdued nature we talk about is the consumer sentiment, which is weakening in the U.K.,” Chief Executive Officer Dave Lewis said on a call with reporters. “Some of that is clearly driven by the political situation.’’
The governing Conservative Party is seeking a new leader after the resignation of Theresa May, which followed her inability to secure Parliamentary approval for her Brexit deal. Now the EU exit has been delayed until Oct. 31, leaving shoppers in limbo over what comes next.
Tesco also suffered from comparisons against a particularly strong period last year, when it benefited from warm weather and a royal wedding. The Booker wholesale division, which has been driving growth, continues to expand but was also held back by a similar effect after securing contract wins last year.
Tesco has used its scale to hold down prices, until now insulating it from the troubles faced by rivals like J Sainsbury (OTC:JSAIY) Plc, whose bid to combine with Walmart (NYSE:WMT) Inc.’s Asda was blocked by regulators. The deal would have given them the purchasing heft to rival the market leader.
Tesco said it was still growing more rapidly than the overall U.K. market as it expands its range of private-label items. But the rate in the latest period was a sharp slowdown from the fourth quarter’s 1.7% gain. Tesco’s shares have climbed 20% so far this year.
(Updates with CEO comment in third paragraph.)
