Here’s why Tesco share price is tumbling after strong Q1 results

Tesco share price declined sharply after the UK retailer released its Q1 corporate earnings data. The shares are trading at £228, which is 2.2% lower than yesterday’s close of £226. The company has underperformed the FTSE 100, which has dropped by more than 1%.

Tesco Q1 earnings

As I wrote in my Tesco earnings preview yesterday, the company had a mixed quarter with higher income but higher costs. In the quarter, Tesco Group made more than £13.3 billion. That was 8% at constant rates and 7.9% on a like-for-like sales changes.

Sales of its UK business rose by £12.214 billion, with most of the growth coming from ROI, which grew by almost 20%. Tesco UK sales rose by 9.1% while Booker sales rose by 6.1%. Meanwhile, in Central Europe, sales rose by just 3.3%. These sales did not include the Polish operations where the company exited recently. Most importantly, online sales rose by 48.5% in the quarter while fuel sales fell by 50%.

Meanwhile, revenue of Tesco bank declined by 26.5% because of interruptions in banking activities.

In the statement, the firm’s CEO said:

“Through a very challenging period for everyone, Tesco colleagues have gone above and beyond, and I’m extremely proud of what they’ve achieved.”

Tesco share price is dropping mostly because of the rising costs. These costs increased as the firm accelerated its investments in technology and delivery options. In the quarter, Tesco paid leave for more than 26,000 employees and added more than 47,000 temporary workers. The chart below shows how Tesco made money in Q1.

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Tesco share price technical analysis

The daily chart below shows that Tesco share price dropped to the lowest level since April 8. The price is below the 50-day and 100-day exponential moving average. It is also between the 38.6% and 23.6% Fibonacci retracement level. Also, it has moved lower for the past four days, which implies that bears are in control. Therefore, Tesco stock price may continue falling as bears target the next support at £220p.

On the other hand, a move above 230p will invalidate this thesis. This is an important psychological level that is also along the 50-day exponential moving average.

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