Tesco sales slump adds to supermarket gloom
Tesco suffers its worst trading in four decades, with sales from UK stores open at least a year falling 3.7 per cent in the past three months.
The fall of 3.7 per cent in Tesco’s UK like-for-like sales for the first quarter of its financial year did little to boost confidence in Chief Executive Philip Clarke‘s revival strategy, although analysts said the figure was slightly better than their worst fears for a decline of more than 4 per cent.
Tesco shares were 2.4p higher at 299.9p after recent heavy losses, while the FTSE 100 Index was broadly flat – up 2.9 points at 6839.
Price cuts
Mr Clarke said: “There hasn’t been a quarter of like-for-like sales like this before that I can remember, but I’ve never seen a period of such intense transformation for the industry.”
Tesco has responded by investing in price cuts on “the products that matter most” – and Mr Clarke said sales volumes had risen 28 per cent in these areas. The retailer is also in the midst of a “refresh” programme to update stores.
There hasn’t been a quarter of like-for-like sales like this before that I can remember, but I’ve never seen a period of such intense transformation for the industry. Tesco Chief Executive Philip Clarke
Mr Clarke said: “Our accelerated plans are making a real difference for customers and we are more competitive than we have been for many years.”
But he warned that the programme was continuing to disrupt like-for-like sales performance.
Mr Clarke added: “We are pleased by the early response to our accelerated efforts to deliver the most compelling offer for customers.
“We expect this acceleration to continue to impact our headline performance throughout the coming quarters and for trading conditions to remain challenging for the UK grocery market as a whole.”
Market decline
The gloomy trading update from Tesco have put supermarkets in the spotlight. Like its rivals, Tesco is facing a challenge from discounters Aldi and Lidl, and latest industry figures show its market share has declined steeply.
Cantor Fitzgerald analyst Mike Dennis said: “The UK market is polarising faster between budget brands and premium ones. It seems Tesco is stuck in the middle and investors could be questioning management’s strategy.”
Tesco said a squeeze on real wages was continuing to have an effect despite recent signs of optimism.
Sainsbury’s shares were also under pressure, down 5.6p to 228.2p while Morrisons slipped 0.4p to 194p. Other fallers included brewer SABMiller, which declined 26p to 3267.5p in the wake of a broker downgrade from Morgan Stanley.
Meanwhile, Vodafone was also down after regulator Ofcom announced proposals to further reduce termination rates by April 2017. Shares were 3.5p lower at 204p.
Tesco has more than 3,000 UK shops employing more than 300,000 people, with annual sales of £48.2bn at home and £70.9bn overall.