Every little helps as Tesco cuts sales targets

Published on Wednesday 29 October 2008 08:55

SUPERMARKET giant Tesco has cut its sales targets for the first time in several years as it prepares for a difficult run.

Britain's biggest retailer is now budgeting for two per cent underlying sales growth in the UK instead of its usual three to four per cent.

It revealed its new internal sales targets in a meeting with investment banking group Shore Capital.

Clive Black, an analyst at Shore, said the decision was "very significant" and helped to explain why Tesco was toughening terms with its suppliers.

The supermarket has written to all its non-food suppliers telling them it planned to change its payment terms from 30 to 60 days from December 1.

Mr Black said: "Tesco has been budgeting for its business to do three to four per cent like-for-likes (same store sales] in the UK for many years, certainly for most of this decade.

"I can't remember the last time the budget was less than that.

"It is not about the profit forecast, it is about them saying they expect the UK economy to be materially slower. That cascades through the business. They are setting themselves to run off a lower cost base."

Last month, Tesco reported a ten per cent rise in profits in the first half of its year. UK like-for-like sales rose by four per cent excluding fuel during the second quarter.

Researchers TNS WorldPanel said Tesco has been losing UK market share to rivals more closely associated with low prices, such as WalMart-owned Asda, Morrisons, Aldi and Lidl.

But Tesco still has a British market share of over 30 per cent.

Tesco's decision to change its payment terms will leave the supermarket with millions of pounds extra in working capital in the run-up to Christmas, but it will anger suppliers who will have to wait longer to be paid by a company that made nearly 3bn in profit last year.

Terry Leahy, chief executive, said at the time that the supermarket chain was facing "powerful economic headwinds" when he delivered his interim results at the beginning of the month.

The chain claimed it was "at its best" in difficult trading conditions, reporting a 11.3 per cent rise in pre-tax profits to 1.44 billion in the six months to 23 August.