Saturday 24 February 2018

Tesco UK falls back to underlying sales decline in third quarter

Figures raise questions about Tesco recovery strategy

Tesco fell back to an underlying sales decline in its main British market in its third quarter, raising new questions over its recovery strategy.

The firm, which trails France's Carrefour and United States number one Wal-Mart in annual sales, also reported this morning underlying sales declines in all of its overseas markets.

Tesco, which makes about two thirds of its revenue in Britain, is 20 months into a turnaround plan for its main UK business that has pumped over £1bn (€1.2bn) into store revamps, more staff, new product ranges and pricing initiatives.

Despite this, sales at British stores open over a year, excluding fuel and VAT sales tax, fell 1.5pc in the 13 weeks to November 23.

That compares to analysts' forecasts of down 1-2pc and flat like-for-like sales reported for the second quarter.

Meanwhile overseas markets that once provided a hedge against weak demand at home now appear to be more of a hindrance. Like-for-like sales fell by 5.1pc in Asia and were 4pc lower in the Europe division.

Total group sales increased 0.6pc at actual exchange rates, excluding petrol.

"Despite the challenging conditions in many of our markets, we are performing in line with market expectations for the full year," Tesco said.

Analysts' average forecast for group trading profit in 2013-14 is £3.39bn down from the £3.45bn made in 2012-13, according to Tesco's website.

Tesco, in common with Britain's three other major grocers - Wal-Mart's Asda, J Sainsbury and Wm Morrison - is being squeezed by hard discounters Aldi and Lidl and upmarket grocers Waitrose and Marks & Spencer.

Last month Kantar Worldpanel, the market research group, reported that all of the "big four" were losing market share for the first time in over a decade, while Aldi's share was at a record high.

Last month Asda reported a 0.3pc rise in third quarter like-for-like sales and said it would invest £1bn on price cuts over the next five years.

The step up in competition has prompted some analysts to suggest Tesco needs to cut prices to reclaim lost market share, putting a doubt over the sustainability of its targeted UK operating margin of 5.2pc

The group did not give an operating margin for the third quarter.


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