Financial News

  • 4 December 2013, 19:40

Tesco UK Sales: Setback Blamed On Economy

Tesco's UK recovery strategy is facing renewed scrutiny after it confirmed a third-quarter decline in underlying sales.

Britain's biggest retailer is 20 months into a turnaround plan for its main UK business, which has seen more than £1bn invested in store revamps, more staff, new product ranges and pricing initiatives.

But it said sales at British stores open over a year, excluding fuel and VAT, fell 1.5% in the 13 weeks to November 23 - down 1.2% when fuel was included.

Tesco said total group sales increased 0.6% at actual exchange rates, excluding petrol, though like-for-like sales fell 5.1% in Asia and were 4% lower in the Europe division.

The results statement said: "Despite the challenging conditions in many of our markets, we are performing in line with market expectations for the full year."

Chief executive Philip Clarke added: "Continuing pressures on UK household finances have made the grocery market more challenging for everyone since the summer and our third quarter performance reflects this.

"Overseas, the near-term trading environment also remains tough."

Tesco and its three biggest competitors Asda, Sainsbury's and Morrisons are being squeezed by discounters Aldi and Lidl and the more upmarket Waitrose and Marks & Spencer at the other end of the scale.

Last month Kantar Worldpanel, the market research group, reported that all of the "big four" were losing market share for the first time in over a decade, while Aldi's share was at a record high.

The step up in competition has prompted some analysts to suggest Tesco needs to cut prices to reclaim lost market share, putting a doubt over the sustainability of its targeted UK operating margin of 5.2%.

The group did not give an operating margin for the third quarter.

Analysts' average forecast for group trading profit in 2013-14 is £3.39bn, down from the £3.45bn made in 2012-13, according to Tesco's website.

Its share price rose 1% when the FTSE 100 opened on Wednesday.

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