The Tesco (LSE:TSCO) share price took a bit of a tumble last Friday, falling by 4% after it published its first-quarter results. This brought the stock’s 12-month performance to around -2% (taking its share consolidation into account), so it remains almost flat. But were these results as bad as the market suggests? Let’s take a look at the numbers, and see whether this is actually a buying opportunity.
The Tesco share price versus earnings
At first glance, Tesco’s latest earnings report looks quite underwhelming. After all, revenues for the period grew by a measly 1% (excluding fuel sales). But looking at the individual revenue streams, there are some encouraging signs of improvement.
Firstly, its Booker division saw a 68.1% increase in like-for-like catering sales that increased its overall revenue by 9.2%. This growth is clearly benefiting from the return of the hospitality sector as lockdown restrictions have enabled pubs and restaurants to reopen.
Meanwhile, sales from its supermarkets have also performed relatively well. Comparing to a year ago, growth remains paltry at 1.3%. However, going back two years, to get a pre-pandemic comparison, overall sales were up 8.7%. To me, this suggests that after more than a year of being obliged to cook at home, the habit might have stuck with plenty of households. Furthermore, online grocery sales were also up by 81.6% compared to pre-pandemic levels and 22.2% compared to a year ago.
Lastly, fuel sales for the UK were also up by 68.1% since last year mainly due to the increased number of cars on the road. However, it is worth noting that this remains below pre-pandemic levels.
Overall, these figures are quite impressive, in my opinion, especially for a food retailer. So why did the Tesco share price fall?
The rising uncertainty
Despite the solid progress made, there appear to be growing concerns surrounding inflation. In other words, the price of food and everyday products is rising. And that’s quite a big problem for food retailers like Tesco. Why? Because despite having a solid brand, the industry is flooded with competitors that eliminate nearly all pricing power. This is the reason Tesco has begun price-matching its products with companies like Aldi. Given the ability to raise prices is relatively low, margins will undoubtedly be affected if the fears of inflation come to pass.
Another concern seems to be surrounding the longevity of online sales growth. While they were up by double-digits last quarter, these figures have started to show some weakness. Tesco has stated that online sales growth has begun to slow during the April/May period as lockdown restrictions continued to be eased. Needless to say, if this growth begins to reverse, Tesco’s share price would likely suffer, at least in the short term.
The bottom line
I find these latest figures quite encouraging. They are certainly not ground-breaking. But, seeing high double-digit growth across its divisions continues to make me believe that the Tesco share price can return to its pre-pandemic levels.
Therefore, in my eyes, this latest dip looks like an opportunity to snatch up some shares (and a 4% dividend yield) at a lower price.