Tesco Share Price Erases Early Losses As Sales Rise

Shares of Tesco (LON: TSCO) have rallied 2.8% to erase losses from the early morning after the supermarket chain said its sales rose 8.2% in the first quarter ending May 30. Sales climbed to £12.21 billion, mostly due to the panic buying in the wake of the coronavirus outbreak.

“We are well positioned to capture market growth beyond our original ambition and will continue with the roll out of the UFC programme as we respond to the accelerated shift in customer demand,” said Tesco.

The “UFC” stands for “urban fulfilment centres”, intended to boost online business. This segment of Tesco’s business grew 45.8% in the first quarter. The firm was able to adapt to the new circumstances and enhance its online capacity from 600,000 slots a week to 1.3 million slots a week.

These changes to its business model led to a substantial increase in costs.

“The majority of these costs relate to payroll which includes the provision of twelve weeks’ paid leave to 26,000 vulnerable colleagues, in addition to the recruitment of 47,000 temporary colleagues to cover absence and meet increased demand,” said Tesco.

Tesco stock price gapped 2% lower at 221.9p this morning. However, the buyers have managed to push the stock into the green to trade at 227.6p. 

“We like Tesco’s current approach and strategy, which we think is right for the times it now operates,” Shore Capital commented.

The bulls are now facing strong resistance at 232p on a weekly chart.