Britain's biggest retailer Tesco (TSCO) ticks down 2.2% to 204.2p despite CEO Dave Lewis (pictured below) delivering a third successful Christmas with UK like-for-like sales up 0.7% for the six weeks ended 7 January.

Food like-for-likes rose 1.3%, Tesco outperforming in fresh food, while Lewis also flags a strong festive performance in clothing and toys.

Below, we provide comment from analysts this morning, which may explain why the shares are down.

ANALYSTS' VIEW

Ian Forrest, investment research analyst at The Share Centre, writes: 'Interestingly, Tesco’s share price has fallen this morning due to relatively underwhelming Christmas sales. However, in the combined update released this morning, the company reported volume growth for the eighth quarter in a row as well as its first quarterly market share growth since 2011.'

'Tesco said that UK like-for-like sales grew by 0.7% over the festive period, with food like-for-like sales up 1.3% due to significant market outperformance in fresh food.

'The company highlighted that lower like-for-like general merchandise sales are likely down to it not repeating the Clubcard ‘Boost’ promotion whilst there were strong performances in clothing and toys, with sales up 4.3% and 8.5% respectively.'

dave-lewis-tesco

FIERCE COMPETITION

'Tesco follows Morrison’s and Sainsbury's who reported sales growth this week so it looks like the retail sector continues to benefit from confidence in UK consumer spending.

'Nevertheless, we believe that fierce price competition and promotions are likely to remain a squeeze on margins for some time and the revised strategy is going to take time to implement. As a result, we continue to recommend Tesco as a ‘hold’ for medium risk investors seeking growth.'

MARKET SHARE GAIN

Neil Wilson, Senior Market Analyst at ETX Capital, comments: 'Tesco continues its turnaround process with an impressive 1.5% rise in group like-for-like sales, led by a 1.8% gain for the core UK business.

Of note and showing just how much Dave Lewis has achieved, the period marked the supermarket’s first quarterly market share gain since 2011. Very impressive for the UK’s leading grocer and a fitting way to cap its eighth quarter of LFL volume growth.'

He continues: 'Sterling is, of course, a factor and Tesco says it is working “in collaboration” with suppliers to manage the situation, which is shorthand for telling Unilever it wouldn’t pay 10% more for the latter’s goods.

'Flexing its muscles as a buyer seems to have paid off for now but we have to factor in the prospect that higher costs will eat into margins. Investors are not overly impressed at the start of trading, however, with the stock down 2.5% on the open.

'Optimism from Sainsbury’s and Morrisons good results earlier this week had fuelled some buying but looks like Tesco has not delivered anything extra. Encouraging results from the UK’s biggest retailer nonetheless.'

SELF IMPROVEMENT

Shore Capital's Clive Black says: 'From an investment thesis perspective, we like the self-improvement taking place at Tesco with the management delivering higher quality and more sustainable earnings, something that is again welcome from a sector perspective to our minds.'

Black continues: 'Whilst this is so, Tesco stock still has fulsome recovery earnings multiples, the equity does not yet yield a dividend and on a pension and lease adjusted basis the solvency ratios are still high in an absolute and relative context in our view.

'Accordingly, we see this as a good statement, albeit perhaps not good enough for the ‘uber’ bulls.

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 12 Jan 2017