Nervousness ahead of Tesco's first-quarter results prompted some profit taking among supermarket stocks on Monday, which were among the worst performers in afternoon trade.
The negative trend of UK like-for-like (LFL) sales at Tesco is likely to have worsened in its first quarter, analysts at Oriel Securities said.
were down 1.1% at 300.27p today, with J Sainsbury falling 1.9% and WM Morrison down 1.1%.
"Those looking for Tesco's first quarter to offer a sign of life in UK food retail are likely to be disappointed. -4% LFL is on the cards and if there are no signs that things are picking up, another downgrade is entirely possible," the broker said. This compares with an exit rate in UK LFL sales of -3.5% in the fourth quarter of the previous financial year ending February 2014.
What's more, Oriel said that the estimated 4% UK LFL decline "may be at the optimistic end of the spectrum", according to recent industry data from Kantar.
The broker said that inflation has "ceased to be a factor in UK food retailing" given the recent wave of price cuts across the industry. "That's good news for customers, but bad news for 'Big 4' top lines", it said.
Similarly, analysts at Shore Capital last Thursday said that they "cannot call an end to the downgrade cycle" at Tesco and said they "have never been so gloomy on Tesco UK's prospects in over 20 years". The broker expects LFL sales to decline by around 3.5% in the first quarter, driven by easing inflation and the negative impact from the group's store modernisation programme.
Shore believes that the company's UK trading strategy "simply just does not seem to be working", given that customers view the retailer as too expensive compared with cheaper rivals such as Asda and even WM Morrison given the latter's recent price cuts.
"That is a dangerous and frankly untenable place for a mass-market leader to be in our view!" it said.
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