PRESSURE mounted on Tesco boss Phil Clarke yesterday as the supermarket giant posted the worst quarterly slump in UK sales he has witnessed in four decades with the group.
The latest setback came after the company posted its second year running of falling profits and a £734 million write-down on the value of its European and Chinese businesses in April.
Clarke, who became chief executive in 2011, also acknowledged that the firm’s woes were unlikely to ease in the near-term. “I’m not making any promises about sales improvement in the next few quarters,” he said in a telephone conference call.
“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’s shares closed down 4p at 293.5p. The latest fall in sales was worse than the 3 per cent decline in the final quarter of the company’s 2013-14 financial year.
As part of a root-and-branch overhaul of the retailer, Clarke is refurbishing hundreds of stores nationwide, hiring thousands more shopfloor staff and refreshing product ranges.
However, analysts said disruption from this store revamp was partly responsible for revenues being hit. The Tesco boss has also recently promised an additional £200m of price cuts to take on supermarket rivals doing the same, including the recently announced £1bn price promotion at Morrisons over the next three years.
“We are pleased by the early response to our accelerated efforts to deliver the most compelling offer for customers,” Clarke added.
“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.”
Tesco and its rivals are battling a British grocery market expanding at its slowest pace in more than a decade as largely stagnant wages since the 2008-9 recession continue to rein in consumer spending.
The big four of the supermarket sector, which include Asda and Sainsbury’s, have also been losing market share in the UK to the fast-growing German-owned discounters, Aldi and Lidl.
Brokerage Cantor said: “Tesco management should provide more evidence that the current strategy is working, otherwise we could expect UK profit margins to fall below the current 4.5 per cent this year.” That margin is down half a per cent year on year.
Another analyst said: “The jury remains resolutely out on the likely medium-term impact of the turnaround. The longer there is no improvement in same-floorspace sales the greater the sense of malaise will be surrounding the shares.”
• Retailer New Look yesterday announced Tesco’s group finance director Mike Iddon will be joining it as its chief financial officer.
Iddon, who has held many senior positions at Tesco over the past 13 years, said he was “excited” to be joining New Look as it “looks to consolidate its impressive achievements in the last two years – both in the UK and internationally”.