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Tesco UK sales continue to fall

UK’s largest retailer reports a further decline in like-for-like sales growth in the first quarter of the year.

Tesco UK sales continue to fall

Like-for-life sales growth has continued to fall at the UK’s largest retailer, Tesco (TSCO.L), in the first quarter of 2012 as the tough economic environment hits consumer spending.

UK sales growth dropped 1.3 percentage points to 2.4% (down from 3.7% growth in the fourth quarter) in the 13 weeks to the end of May, while European sales grew a weak 0.4%. 

The group blamed the eurozone debt crisis for ‘very low consumer confidence’ in Europe and has embarked on a revamp of its UK stores in a bid to hold on to customers.

Its Asian supermarkets are now driving growth, with a 9.1% rise in sales as Thailand and South Korea gave a strong performance. China’s like-for-like sales also fell against a weak economic backdrop.

The announcement follows the group’s shock profit warning issued in January after poor Christmas sales. Chief executive Phil Clarke forecast operating profits for 2012/13 to be flat, rather than the expected rise of 10%.

In April it launched a £1 billion makeover of its existing stores and website after the group conceded that in the race for competitive pricing it had taken 'a little bit too much away from the shopper'. Clarke also gave up his £372,000 bonus in response to the poor results.  

A number of top fund managers sold the stock following the profit warning, including Neil Woodford, who said he had ‘placed too much confidence’ in Tesco’s ability to deal with the economic headwinds.

In some happier news, the group also reported its biggest boost outside the Christmas period in the run-up the Diamond Jubilee, with over £1 billion in sales. Those sales will be included in the next quarter’s results.

Like-for-like UK sales excluding VAT and petrol fell by 1.5% over the quarter. Group sales, meanwhile, rose 2.2% over the period.

Analysts at Seymour Pierce downgraded their target price from 350p to 320p this morning, and kept their ‘hold’ stance on the stock. Shares slipped 1.2p or 0.5% to 301p in Monday morning trade.

Freddie George, retail research analyst at Seymour Pierce, said: ‘We continue to believe that Tesco is still a strong business with an unassailable market-leading position in the UK that has temporarily come off the rails… Nevertheless it is hard to see anything other than pedestrian earnings growth from the company over the next three years.

‘UK profits are unlikely to grow while the company has to invest in its proposition to defend market share and overseas, which still only accounts for about 25% of operating profits, will not significantly move the dial.’

6 comments so far. Why not have your say?

andrew sutherland

Jun 11, 2012 at 12:20

No sympathy!

Maybe if they learnt how to treat customers with respect and not muck them around, they wouldn't be loosing money. I've moved all of my business from Tesco's to Ocado/Waitrose, at least they know how to treat customers!

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Jo Public

Jun 11, 2012 at 12:59

How much more can Tesco take? Look at their share price over the past 18 months, and compare with their competitors (e.g. Morrisons). This seems to be no more than a reflection of the situation on the ground with dead birds in the salads (BBC), beef scandals (Independent), etc. which have turned Tesco into the McDonalds of the supermarket world i.e. their name has become synonymous with everything that is wrong with that retail model.

When there is an "unnamed" own brand with a mouse found in a tin of baked beans it could be anyone - but people just make assumptions. On another forum someone was telling tales of saturation with stores competing with each other for the same customers and just taking business from each other.

Is it time for a break-up?

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Matthew Charles Flinders

Jun 11, 2012 at 13:22

This result was inevitable, there will be a time lag for Tescos with regards to its new operations in place. I suspect things will pick up in the UK near the end of the year, after we start seeing the outcome of the revamp process.

What is good news is that its overseas markets are still expanding. This will help support the revamp costs in the UK and will ultimately provide stability in the long run.

Tescos has perhaps more bad media then other supermarkets yes. But the company is in the limelight more due to its size and responsibility in the market. Do not let the media blind your eyes to an investment opportunity. You'll still find many flaws in other supermarkets.

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J Thomas

Jun 11, 2012 at 13:24

Memo to Tesco:

When your store managers are caught on camera boasting and laughing about putting small local shops and suppliers out of business, are you really surprised?

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Jun 11, 2012 at 16:01

£2.50, or lower perhaps?

I do quite well out of shopping Tescos, with buying the sell by stock on the day, 80% off. Problem is the local store has become quite tight (good) on their stock control. To good for my liking, the bargains are getting less and less.

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anil kumar

Jun 11, 2012 at 18:54

Tesco is still not learning the lesson for treating its customer with respect and taking them for granted.All the tricks they get up to pool the wool over the customers eyes,we all know their tricks now and are voting with our feet.

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