Tesco reports another drop in quarterly sales

Wednesday 04 June 2014 17.57
Tesco is the world's third-largest retailer after Wal-Mart and Carrefour
Tesco is the world's third-largest retailer after Wal-Mart and Carrefour

Retailer Tesco has said its Irish like-for-like sales were down 5.5% in the first three months of the year.

This represents an improving situation on the fourth quarter of last year when sales were down 6.4%, but overall the retailer reported a 3.7% fall in group sales, excluding petrol.

In Ireland, Tesco said that while the market remains "intensely competitive" with high levels of untargeted couponing, its performance here is starting to improve.

But Britain's biggest retailer recorded its worst quarterly UK sales drop in 40 years, raising questions over boss Phil Clarke's strategy to counter the challenges of a rapidly-changing grocery industry. 

UK consumers are looking around to save money, trying to waste less by buying little and often in local convenience stores instead of a big weekly shop at large out-of-town stores.

They are turning to fast-growing discounters Aldi and Lidl for basics and Waitrose and Marks & Spencer for top end treats. 

Tesco is caught in the middle and has posted two years of profit decline in a row with a third forecast for 2014-15. 

With its key measurement of underlying sales at UK stores down 3.8% in its fiscal first quarter, Clarke is accelerating an investment programme to modernise stores in the group and is cutting prices to try to woo back shoppers and re-build long-term loyalty. 

But with rivals Wal-Mart's Asda and Morrisons promising billions of pounds of price cuts and Sainsbury's vowing to remain competitive some analysts think Tesco's prices are still too high.

Clarke, who began his 40-year Tesco career aged 14, stacking shelves in a store managed by his father, reiterated he has nointention of quitting. "I'm not going anywhere, I'm going to see through the fundamental reshaping of Tesco," he told reporters today.
              
He is two years into a multi-billion pound turnaround plan for its British business which contributes two-thirds of sales and profit for the group, the world's third-largest retailer after Wal-Mart and Carrefour. Clarke has invested in store refits, staff, product ranges and online services, and dropped an industry leading profit margin target, but has so far failed to deliver any improvement in underlying sales.
              
Tesco said sales at UK stores open for longer than a year, excluding fuel and VAT sales tax, fell 3.8% in its fiscal first quarter, hurt by the price cuts deflating sales, a reduction in untargeted promotions, disruption from refurbishments and an overall grocery market growing at its slowest pace for over a decade. Analysts had forecast a decline of 3.5-4.1%, after a fall of 3% in the previous quarter. 

Though the first quarter outcome was not as bad as some analysts feared after the release of weak market share data earlier this week, one Tesco investor called the figures "shocking".

Tesco CEO says his strategy is the right one              

Clarke told reporters he could not recall a weaker quarterly performance in his career but insisted his strategy was the right one, saying he was pleased with the response of customers to price cuts, the roll-out of a fuel savings scheme for holders of Tesco's loyalty card, reduced home delivery charges and over 100 stores refreshed in the quarter. 

"The plan is working. We've cut prices and they've brought down our like-for-like sales in the short term but we're now much more competitive and volumes on the lines we've cut are up over 28%," he said. "There's more to come. Price is an important part of the story but it's not the only story," he added.
              
But the CEO again cautioned that like-for-like sales would continue to be negative as price cuts hit sales going through the till and are not offset by volume gains and as 200 more stores are refreshed in the second quarter. "I see every day the improvements that are coming in the business but I'm not making any promises about sales improvement in the next few quarters," he said.
              
Tesco has not just suffered in Britain in recent years. Overseas, failed attempts, instigated by Clarke's predecessor Terry Leahy, to break into the US and Japan and troubles in China and Europe have proved a distraction.
              
Tesco said international sales tumbled 8% due to currency effects, but rose 0.5% at constant currencies, with like-for-like performance in Asia improving compared with the previous quarter despite political turmoil in Thailand. 

The firm said last week it had failed to reach a deal with unnamed parties over its struggling business in Turkey. 

Uncertainty also hangs over Tesco's plans in India after the election of the Bhartiya Janata Party, which has said it will not allow foreign direct investment in multi-brand retail. Tesco said earlier this week that it had completed the establishment of a joint venture with India's Tata.