The Tesco share price has rallied from a July low of 210.4 to August highs near 230 but the trend has since turned, and a break of support threatens further losses as lockdowns lift.
The company has recently committed to an ambitious plan to create 16,000 roles in a bid to win market share in online shopping. Tesco has already added 4,000 jobs since the start of the coronavirus outbreak as the supermarket sector has avoided the lockdowns that have crippled other sectors.
Tesco released its first-quarter earnings on 26th June with the company hitting sales of £12.2bn, which was 8.2% higher than the year previous. Like-for-like sales were actually higher in the Republic of Ireland with growth of 20%, compared to 9% in the UK. Tesco managed to double its online capacity in only five weeks during the crisis and the company benefited from a lack of competition with the public unable to eat out at bars and restaurants, while alcohol sales increased for the same reasons.
The sales picture at Tesco will likely change in the second half with customers eager to get out for diversified eating experiences, whilst the U.K. government’s “eat out to help out” scheme will also see less food purchased on a national level. Despite this, Tesco is in a good position after the virus and will be free to make better strategic decisions than other sectors are capable of as they battle collapsing revenues and cash burn. A move to implement an “ALDI price match” in March was a success for the company, which saw switching gains from the German grocer for the first time in over ten years.
The recent pullback in Tesco may just be a correction in the stock and the support of 216-220 would be the initial target. If weakness continued in the stock, then the July low of 210.4 would come into play. Tesco’s next trading update will be one month away, and initial resistance is at 228 for return to the bullish case.
