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Tesco LFL sales drop sharply

A defiant Philip Clarke presided over another sharp drop in quarterly like-for-like sales at Tesco, claiming: “We’ve got the right strategy”.

The chief executive of Tesco said the 3.8 per cent fall in like-for-like sales, excluding fuel and value-added tax, in the three months to May was “exactly as we expected”.

Analysts had forecast a decline of 3.5 to 4.1 per cent, after a fall of 3 per cent in the fourth quarter. After a brief rally, Tesco shares fell by 1.67 per cent to 292p.

Analysts also estimated that the result was the weakest performance for over a decade for the British market leader, although Tesco does not give a breakdown of quarterly results going back that far.

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It was, for certain, the third straight quarterly drop and driven by price cuts and a weak food market. In the UK, its key market which contributes two-thirds of sales and profit for the group, trading was held back by a reduction in promotions and deflationary impact of lower prices. Tesco, Asda and Wm Morrison have committed billions of pounds to cut prices.

Mr Clarke who is almost two years into a turnaround plan for the British arm of the business, said spending was subdued in the market but the chain was determined to lead during a period of structural change in the retail industry.

“Our accelerated plans are making a real difference for customers and we are more competitive than we have been for many years,” he said.

“On price, the entire market has seen a step-down in growth since the end of last year largely driven by lower inflation.“

Mr Clarke refused to “make any promises about sales improvement in the next few quarters”.

Tesco has suffered two straight years of profit decline and Mr Clarke predicted a third for 2014-15 as he expects same-store sales would be negative for some time.

The numbers will increase pressure on the chief executive, who has struggled to continue a record of growth achieved by Sir Terry Leahy, his predecessor.

Mr Clarke pledged 18 months ago to invest £1 billion to turnaround Tesco’s UK business and earlier this year set out plans to spend £200 million cutting prices. Another £200 million was poured into a scheme to allow Clubcard loyalty card users to save money on fuel.

He has moved away from superstores by opening smaller, express stores. Mr Clarke has also cut the prices of basic produce such as fruit and vegetables and, in an effort to turn larger stores into more attractive destinations, has invested in several cafe brands — including Giraffe, the restaurant chain, and Harris + Hoole, a coffee shop.

In Asia, Tesco’s like-for-like sales were down 3.2 per cent and 1 per cent in Europe. Of Tesco’s nine markets, only Czech Republic, Hungary, Poland and Turkey reported sales growth.

“The key concern now is that if UK like-for-like sales growth rates continue at this level then management might need to consider cutting capital investment again,” analysts at Cantor Fitzgerald said.

“Tesco management should provide more evidence that the current strategy is working otherwise we could expect UK margins to fall below the current 4.5 percent (down 50bps) this year.”

The dire figures came as The Times revealed that Mike Iddon, Tesco’s UK finance director, is poised to leave Tesco to take the same role at New Look.

The departure will spark renewed fears of a “brain drain” at the embattled chain, which has seen a string of senior and middle-ranking executives leave.

Laurie McIlwee, Tesco’s finance director and Mr Iddon’s boss, left in April. He and Mr Clarke were the last survivors of the team that served under Sir Terry.

According to a Tesco insider, Mr Iddon was the leading internal candidate to replace Mr McIlwee and his departure suggests that Tesco will have to look outside for a finance chief.

Source : Susan Thompson - The Times

04 June 2014
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