Tesco sales slump again as Philip Clarke’s masterplan fails

By MARTIN FLANAGAN
Published on 12/06/2012 00:00

TESCO posted a further fall in sales yesterday as a £1 billion turnaround plan unveiled by chief executive Philip Clarke in April struggles to gain traction amid continuing consumer headwinds.

Britain’s largest supermarket group’s like-for-like sales slid 1.5 per cent in the 13 weeks to 26 May. That was slightly better than the 1.6 per cent sales decline in the final quarter of its last financial year, which followed a bombshell profits warning from Tesco in January after poor Christmas trading.

Clarke, who took over from Sir Terry Leahy at Tesco’s helm in early 2011, said: “Confidence isn’t getting any worse but it isn’t getting any better. The great hope would be that fuel prices are going to come down. A tank of petrol is still £70 now and it was £45 two years ago, an amazing dent in household budgets.”

Clarke’s plan for revival involves store revamps, thousands of extra shopfloor staff and an online sales drive. He said extra staff were now in 700 stores and 145,000 employees had been given specialist training.

“Our customers are seeing the evidence of the changes we’re making and they like what they see,” he added.

However, the Tesco boss declined to forecast how long a significant turnaround in like-for-like sales would take.

Richard Cathcart, food retailing analyst at Espirito Santo investment bank, said: “We are not yet seeing the concrete signs of improvement that would drive a re-rating of the shares.

“As the year progresses, management will have to show hard evidence that consumers’ perception of the Tesco offer are improving.”

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “Realistically, this is a marathon and not a sprint for Tesco.

“The amendments it is making to its business model will take time to implement and wash through. However, investors are quite impatient and have been searching for opportunities elsewhere, as evidenced by the 24 per cent drop in the share price over the last six months, as compared to a 2 per cent fall for the wider FTSE 100 index.”

The company’s shares closed flat yesterday at 302.8p.

Clarke said the sector was still highly competitive in the first quarter “with a significant amount of couponing activity”.

He said Tesco’s extensive international business – from central Europe to Asia and the United States – had performed resiliently. But he confirmed City concerns about South Korea where like-for-like sales were down 1.1 per cent. Tesco said that the country was growing at its slowest rate for three years.

“The recently-introduced legislation allowing local governments to enforce closures on two days per month and restrict opening hours had an impact in the last three weeks of the quarter as it was more widely implemented across the country”, the company said.

Like-for-like sales in Europe edged up 0.4 per cent, including the Republic of Ireland delivering its first quarter of growth since 2010.

However, Tesco warned: “Continued uncertainty over the future of the eurozone and the potential impact of any further disruption has resulted in very low consumer confidence, particularly in central Europe.”

The loss-making Fresh & Easy subsidiary in the US saw sales growth of 3.6 per cent.