Tesco ‘disappointed’ with U.K. sales decline
Tesco fell as much as 16 percent, the most since at least 1988, after saying profit will be at the “low end of the current consensus range,” while next year will see “minimal” growth in earnings. U.K. sales at stores open at least a year fell 2.3 percent, excluding fuel and value-added tax, in the six weeks ended Jan. 7, worse than the median estimate of 10 analysts compiled by Bloomberg for a 1 percent decline.
The retailer offered fewer coupons than competitors over the holiday as it focused on a campaign to cut the cost of 3,000 everyday items. Big Price Drop didn’t drive the improvement in volume needed to offset reduced prices, Tesco said. U.K. same- store sales have fallen for four straight quarters and Nielsen market research said that Tesco had the slowest sales growth of the four main grocers in the 12 weeks to Dec. 24.
“Recovering U.K. top-line momentum will take time operationally given it has been a problem for many periods,” JPMorgan Cazenove analyst Matthew Truman said. He has an “overweight” recommendation on the shares.
Tesco dropped 14 percent to 330 pence as of 10 a.m. in London, bringing the decline in the past year to 22 percent.
Supermarket Slump
The report dragged down shares of competitors. J Sainsbury Plc fell 4.5 percent to 288.6 pence. William Morrison Supermarkets Plc, the smallest of the U.K.’s four main food retailers, dropped 7.6 percent to 280.9 pence.
Delhaize Group SA (DELB), the owner of the U.S. Food Lion supermarkets, fell 8.2 percent to 43.03 euros in Brussels trading after reporting sales that missed analysts’ estimates and saying it will close 146 unprofitable stores.
Warren Buffett’s Berkshire Hathaway Inc. raised its stake in Tesco to 3.64 percent in September. The investor told CNBC in November he’d buy more shares if Tesco shares declined.
Tesco was “disappointed” with the U.K. sales performance over Christmas, Chief Executive Officer Philip Clarke said.
‘Heavy Couponing’
“In a very noisy promotional market with heavy couponing, our very strong price position just didn’t cut through as much as we’d expected,” the CEO said on a conference call.
Big Price Drop meant inflation at the grocer was half that of the wider U.K. food-retailing market, though Clarke conceded that Tesco needs to be “stronger on promotions and coupons.”
Tesco plans to increase capital spending in the U.K. by “hundreds of millions” of pounds as it invests in better quality, range, service and prices, Finance Director Laurie McIlwee said on the conference call.
The retailer plans to open fewer larger stores in the U.K. and increase investment in its Internet offer, he said.
Clarke said he expects the business climate will be “broadly the same in 2012, I can’t see it being any better.”
McIlwee said analysts had been estimating growth of about 10 percent in trading profit and underlying profit for the year to February 2013, which he has reduced to “minimal growth.”
Trailing Sainsbury
The retailer’s sales trailed competitor Sainsbury, which said yesterday that third-quarter same-store sales rose 1.2 percent, excluding fuel and value-added tax. Sainsbury began its Brand Match price-comparison program in October and held promotions on fuel and toys as it fought for shoppers.
Tesco’s market share slipped to 0.4 percent to 28.9 percent in the 12 weeks to Dec. 24, according to Nielsen.
Total U.K. sales rose 3.8 percent in the six-week period, while a 5 percent increase in international sales led to 4.2 percent growth in group revenue, the company said.
McIlwee said the degree of decline in non-food sales is reducing, though still negative, with sales of 500,000 Apple Inc. iPads helping to improve that business.
“The volume improvement is good and we’ve got half the inflation of the market, but we were outpromoted,” he said.
Shore Capital and Oriel Securities cut recommendations on Tesco stock to “hold,” bringing the totals to 22 buys, 11 holds and five sells according to data compiled by Bloomberg.
Source: bloomberg.com
