Tesco (LSE:TSCO) shares failed to hitch the broader market rally on Thursday (10 April), with the FTSE 100 retailer warning of a possible earnings drop this 12 months.

Final at 314.1p per share, Tesco’s share price was 6.3% decrease on the day. It had sunk to nine-month lows of 310.4p earlier within the session.

Britain’s largest retailer mentioned intensifying price wars would drive its backside line decrease within the close to time period. However may Tesco shares now be low cost sufficient to contemplate shopping for?

Earnings rise…

The grocery store trade’s notoriously aggressive, and retailers need to carry out a fragile balancing act of chopping costs with out decimating their revenue margins.

To be honest to Tesco, it’s made a great fist of navigating this powerful surroundings extra lately. As we speak’s replace confirmed group gross sales up 3.5% within the monetary 12 months ended February, to £63.6bn. Adjusted working revenue leapt 10.6% to £3.1bn, which was truly forward of forecasts.

Like-for-like gross sales have been up 3.1%, pushed by a 4% improve in its core UK operations. Volumes at dwelling additionally got here in forward of expectations, which Tesco mentioned was helped by “ongoing investments in product quality and innovation” throughout its meals strains.

… however are tipped to reverse once more

The unhealthy information is that Tesco predicted issues may get a lot harder, pulling its shares by way of the ground.

Whereas being in “the most competitive position and highest market share we have had for many years,” the grocery store added that “we have seen a further increase in the competitive intensity of the UK market” over the previous few months.

As a consequence, it expects adjusted working revenue to fall to between £2.7bn and £3bn within the present monetary 12 months.

Tesco’s adjusted working margin rose 33 foundation factors in fiscal 2025, to 4.5%. Nevertheless it stays in peril as a double-whammy of rising aggressive pressures and main value will increase.

It mentioned greater Nationwide Insurance coverage contributions — which got here into impact firstly of April — will alone take a £235m chew out of its backside line this 12 months. Tesco’s introduced a £500m cost-cutting programme to assist it navigate the issue of rising bills.

Rivals stepping up

Tesco’s massively profitable Clubcard loyalty scheme is offering it from some safety towards rivals. In truth, the enterprise has relied closely on it in latest occasions by providing decrease ‘Clubcard Prices’ for its members.

However intensifying trade price wars imply that its affect could also be restricted going ahead, and particularly as shopper spending throughout its markets stays below the cosh. Information final month that Asda — the UK’s third largest grocery store by share — plans to make use of what it descrives as a “pretty significant war chest” to slash customers’ payments comes with apparent dangers.

On the identical time, Tesco faces the long-running downside of aggressive property enlargement from its cheaper German rivals Aldi and Lidl.

Low cost however dangerous

Tesco deserves credit score for its resilience in latest occasions. However latest successes may show fleeting as competitors tightens.

As we speak, the FTSE firm trades on a ahead price-to-earnings (P/E) ratio of 10.8 occasions. This is a long way beneath the five-year common of 18-19 occasions.

However even at these costs I’m not tempted to take a position. I believe there are significantly better UK worth shares to contemplate proper now.