By John Harrington
Date: Monday 11 Jun 2012
Like-for-like (LFL) sales in the UK fell for the third quarter in succession at Tesco but the supermarket giant maintained that it is making steady progress with its 'Building a Better Tesco' project.
"Our customers are seeing the evidence of the changes we're making and they're telling us they like what they see," maintained Philip Clarke, Tesco's Chief Executive, as he hailed a robust performance by the group despite subdued consumer confidence in all of its markets.
Taking the global view things do not appear to be going too bad for Tesco. Group sales for the thirteen weeks ending May 26th increased by 2.2% including petrol (3.8% at constant exchange rates) and by 2.6% excluding petrol (3.9% at constant exchange rates).
Considering last year's figures included the Royal Wedding celebrations and this year's reporting period ended before the Queen's Jubilee knees-up, those numbers are about on a par with what the market was expecting. For what it is worth, the group said that after the end of the reporting period it enjoyed its biggest ever sales week outside of a Christmas trading period in the run up to the Diamond Jubilee, with more than £1bn in sales.
Of course, the royal celebrations would mostly have affected UK trading, and it is here that Tesco is finding competition tougher than it is used to.
Total sales in the UK including valued added tax (VAT) and petrol grew by 2.1% and by 2.0% excluding petrol, in line with Tesco's expectations. On a LFL basis, excluding both VAT and petrol, sales fell by 1.5%; that performance was an improvement on the 1.6% decline in the preceding quarter.
The performance was also better than some brokers had been forecasting (e.g. Nomura, which predicted a 1.7% LFL decline) but worse than others (e.g. Jefferies, which predicted a 1.3% slide, and Panmure Gordon, which forecast a 1.0% decline). All parties agree, however, that the performance is better than the 2.3% LFL decline in sales suffered over Christmas.
Tesco, which is engaged in a major initiative to regain momentum in the UK, reckons that its performance was a solid one, given that over a roughly comparable period numbers from market research firm Kantar indicate that the UK market grew by 2.4%, down from 3.7% in the preceding quarter; that's total sales growth, not LFL.
"Our total sales growth, over a very similar period, reduced by only 0.3%, from 2.3% to 2.0%," Tesco noted. Put another way, Tesco still grew by less than the market but at least its rate of growth did not decline so markedly.
"We are rapidly implementing our six-point UK plan and I'm particularly proud of the relaunch of our Everyday Value range and the fact we have now put extra staff into 700 of our stores - in 500 of them within the last three weeks alone," said Clarke, whose job could be on the line if the UK turnaround does not succeed.
Tesco, which takes almost as much money at the tills outside of the UK as rival Sainsbury does worldwide, has seemed to many market observers to be more pre-occupied with overseas expansion than with minding the shop at home, and the supermarket declared itself pleased with the performance of its international businesses, where it grew share in 11 out of its 12 markets.
International sales were up 2.9% year-on-year (y/y), or 3.0% excluding petrol. Using constant exchange rates, sales rose 7.8%, both including and excluding petrol. Jefferies had forecast International total sales growth of 2.5% or 6.2% on a constant exchange rate basis. On a LFL basis, International sales were up 0.5% y/y, bang in line with Panmure Gordon's forecast.
Asia's LFL sales were up 0.4%, as were LFL sales (excluding petrol) in Europe while in the US LFL sales were up 3.6%.
Broker Nomura's predictions were for Europe to be down 0.2% on a LFL basis, Asia 0.4% lower (LFL), and the US up 5% on a LFL basis.
Tesco announced that the final phase of migration for Tesco Bank, which entailed transferring all credit card accounts to its own systems infrastructure, is finally complete.
"The extended migration slowed down the progress of Tesco Bank and has contributed to overall revenues being slightly down compared to last year, exacerbated by a more competitive car insurance market," the group said.
Tesco Bank's sales were down 3.7% y/y.
"At this early stage of the year, we are performing in line with market expectations for the group. The outlook for the year as a whole remains unchanged," Tesco said.
The shares rose 1.4p, or 0.46%, to 304.2p in the first hour of trading. Over the same period, the FTSE 100 was up 1.69%.
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