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Tesco LFL sales drop 1.0% in Q1

Underlying UK sales at Tesco fell 1 per cent in the past three months, raising questions about whether its domestic recovery plan is veering off-track.

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The performance is a reversal from the 0.5 per cent increase in UK like-for-like sales year on year, excluding petrol and value added tax, in the three months to the end of February.

It also raises questions about the momentum behind Tesco’s recovery, after Philip Clarke, chief executive, last year said he would invest £1bn to turn round the UK business after Tesco’s first profit warning in 20 years in January 2012.

However, Mr Clarke, who took over from Sir Terry Leahy 2½ years ago in Tesco’s biggest management transition for 14 years, insisted on Wednesday that the UK recovery was on track.

“What we are into is long-term sustainable growth. Its going to ebb and flow over a quarter, but the direction of travel is the right direction,” he said.

Nevertheless, the first-quarter performance also compares with a period a year ago when UK like-for-like sales fell 1.5 per cent, which should have made year-on-year comparisons easier.

Clive Black, analyst at Shore Capital, said: “We harbour some growing concerns about the robustness of our UK forecasts given the weaker than anticipated trading momentum.”

Mr Clarke said the performance was held back by a shake-up of its non-food business in the UK, where it was ditching some lines and moving more upmarket in others in an effort to win customers from rivals such as John Lewis.

It is cutting back categories such as consumer electronics, which have thin profit margins, to refocus on food and some related areas, such as clothing and health and beauty.

Mr Clarke said this work, which involved revamping hypermarkets to make them more attractive to customers, would negatively impact sales for some time to come.

“It’s a big thing to do. There is no quick fix,” he said.

However, he said the group had made “Herculean” changes to its clothing business, and that these were already paying off. Tesco had also seen positive like-for-like sales in all food categories, with the exception of chilled convenience and frozen food after the horsemeat scandal.

Mr Clarke said the scandal “was well behind us now”.

Outside the UK, like-for-like sales in Asia fell 3.8 per cent, where Tesco has been hit by restrictions on opening hours in South Korea. Its performance also declined in China, where it is eyeing a joint venture, and Thailand. Like-for-like sales in central Europe fell 5.5 per cent.

Tesco said it remained in talks to sell its US business, Fresh & Easy.

Laurie McIlwee, finance director, said Tesco was in “advanced discussions with a number of businesses that are interested in buying Fresh & Easy’s business in its totality”.

Tesco shares, which have risen nearly a fifth in the past year as hopes for the recovery took hold, fell 2.5 per cent on Wednesday to 355.3p

Source : Andrea Felsted – Financial Times

05 June 2013
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