Tesco's UK sales growth slows as Iran war weighs on consumers

By James Davey

LONDON, June 18 (Reuters) - Tesco, Britain's biggest food retailer, reported a slowdown in underlying UK sales growth in its first quarter, missing analysts' average forecast, saying the conflict in the Middle East was continuing to create uncertainty for consumers.

The company's shares were down 2.6% on Thursday, paring gains over the last year to 11%. Tesco maintained its profit guidance for the full year.

Tesco, whose UK grocery market share has grown to over 28%, said UK like-for-like sales rose 1.8% in the 13 weeks to May 30, below analysts' consensus forecast of 2.3% and compared to growth of 3.1% in the previous quarter.

TOUGH COMPARATIVE WITH LAST YEAR

The group was up against a tough comparative performance in the first quarter last year when UK like-for-like sales rose 5.1%, boosted by favourable weather and disruption at competitors Marks & Spencer and the Co-op.

"The (market share) gains we had last year and the sales growth we had were truly exceptional ... so the base is that much higher," CEO Ken Murphy said.

"In that context, we should be feeling pretty good about our performance and it's not a sign of a slowdown per se ... I wouldn't be reading too much into it."

The impact of the Iran war on energy prices, with knock-on effects on consumer spending, is adding to the challenges the UK retail sector and the wider economy face.

"We're seeing that step back in consumer sentiment as a direct consequence of the war," said Murphy, though he noted that so far, inflation "hasn't materialised as an issue" with Tesco's food inflation running below the official rate for May of 2.2% cited by the Office for National Statistics.

Tesco kept its forecast for adjusted operating profit of £3.0 billion to £3.3 billion ($4.0 billion to $4.4 billion) for its year to end-February 2027, versus the £3.152 billion made in 2025/26.

Garry White, chief investment commentator at Charles Stanley, said the maintenance of guidance "should reassure investors that Tesco is managing the balance between competitiveness and profitability effectively, despite a subdued trading backdrop."

Murphy highlighted a strong quarter's performance from Tesco's rapid delivery service Whoosh, where sales grew over 30%.

He noted demand for the service spiked when England started their soccer World Cup campaign on Wednesday evening.

($1 = 0.7517 pounds)

(Reporting by James Davey; editing by Sarah Young)