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The week ahead: Tesco to reveal fall in sales

Tesco’s increasingly aggressive battle with its rivals will be laid bare this week when it unveils a fourth quarter of declining sales in its UK stores.

The weak showing among its 2,500 British supermarkets and convenience stores is likely to overshadow a more solid performance in its expanding overseas markets.

Tesco has suffered more than its main supermarket rivals, in part because it sells a greater percentage of discretionary non-food goods, where shoppers have been cutting back the most.

Retailers are struggling to keep the tills ringing as consumers are squeezed by a triple whammy of stubbornly high inflation, muted wage growth and government austerity measures.

In a trading update on Thursday, Tesco’s new boss Philip Clarke will reveal the impact of its £500 million “Big Price Drop” campaign, which saw the cost of 3,000 items slashed.

The move triggered a robust response as competitors rolled out their own schemes, such as Sainsbury’s Brand Match campaign.

Tesco revealed its worst sales performance in two decades at the half-year stage, with sales excluding additional selling space and new stores, VAT and petrol down 0.9 per cent. However, this covered the period before the price-cutting campaign kicked in.

While the group is confident the £500m “investment” will win customers and eventually boost revenues, analysts believe the short-term impact will be to depress sales.

The analysts forecast underlying sales at its UK stores to be somewhere in a range of down 1 per cent to up 0.5 per cent in the 13 weeks to 26 November, which is Tesco’s financial third quarter. Most in the City are forecasting a fall.

Rod Salmon, an analyst at brokerage Numis Securities, is forecasting little change in the trading situation since the half-year as the impact of price cuts will have been diluted by renewed pressure from competitors and the deteriorating economic backdrop.

Numis is forecasting a decline in UK like-for-like sales, excluding VAT and fuel, of 0.3 per cent.

Tesco’s profits, which were up 12 per cent at £1.9 billion in the last financial year, have been driven by solid sales in its international division, boosted by continued growth in China, India and South Korea. A previously strong Thailand is likely to have been hit by the flooding in Bangkok.

Analysts expect group sales to have risen by a high single digit percentage.

Source : Scott Reid – The Scotsman

04 December 2011
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