Tesco has recorded a 5% increase in food sales in the first quarter of its financial year, as inflation continues to fall.

The supermarket chain has seen its like-for-like sales increase by 3.6% across the UK and Ireland to £14.3bn, while non-food sales increased by 0.7% across the group, driven by growth in clothing sales.

Tesco’s finest sales have also increased by 12.5%, with the group’s market share increasing to 27.6%, which it said was supported by 15 supported periods of "positive switching gains".

Head of markets at interactive investor, Richard Hunter, said: "Its ability to lower prices for customers is enabled by its sheer scale and strength, helped along by falling food inflation and significant cost reductions. In turn, this creates something of a virtuous circle, with more customers attracted by the likes of the group’s Aldi Price Match, Low Everyday Prices and Clubcard Prices while at the same time it has also honed its upper end offering.

"Some of the investment in lowering grocery prices was previously enabled by a parallel concentration on cost reduction announced at the full-year results in April, where £640m of savings was delivered against a target of £600m.

"Following the sale of the majority of Tesco Bank to Barclays which includes a strategic 10-year partnership, there was an additional special dividend of £250m, leading to a current yield of 4% and retail free cash flow of almost £2.1bn enabled further moves to be made in strengthening the financial position. While not referred to in this release, there is also a £1bn share buyback plan which should add further support to the share price."

Looking forward, Tesco said that it expects to reach a retail operating profit of at least £2.8bn in the 2024/25 financial year, while also predicting an operating profit from the retained Tesco Bank business of around £80m.

Furthermore, it added that it is expecting a free cash flow within its guidance range of between £1.4bn and £1.8bn.

Chief executive at Tesco, Ken Murphy, said: "We've continued to build momentum in the business, with strong volume growth across the UK, Republic of Ireland and Central Europe supported by easing inflation. We continue to be the cheapest full-line grocer and are the most competitive we've ever been, with our value, product quality and service driving better brand perception and customer satisfaction.

Following another strong quarter, we're pleased to reiterate our guidance for the full year, with sales trends in line with our expectations and the business well-positioned for the months ahead."

Hunter concluded: "It is fair to say that given its dominance, it can be progressively difficult for Tesco to exceed expectations. Even so, the group is showing few signs of fatigue as its presence weighs heavily on competitors as it continues to hone its focus on value, quality and service. The share price has increased by 15% over the last year, as compared to a gain of 7.4% for the wider FTSE100 and for the moment the group’s longstanding position as the preferred play in the sector seems assured, with the market consensus of the shares as a strong buy highly likely to remain intact.”

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