Tesco underwhelms in home market and balance of power shifts overseas

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Tesco: disappointing seasonal trading in the UK

Tesco: disappointing seasonal trading in the UK

Tesco’s balance of power is shifting from the UK to overseas, the retailer’s latest trading figures reveal.

Reporting results for the six weeks to 7 January 2012, Tesco said it was disappointed with its UK trading performance at Christmas. However, international sales were strong.

UK like-for-like sales in the Christmas period, excluding petrol and VAT, were down -2.3% and -0.9% in the third quarter. Tesco said the results were below expectations, particularly given the difficult weather conditions in 2010.

International business, however, was strong with total sales over the Christmas period up 8.2% (5.0% at actual exchange rates), with strong performances in Asia, Europe and the US.

John Ibbotson, managing director of the retail consultancy, Retail Vision, said: “This was a deeply underwhelming performance by Tesco in its home market — and all the more grave given the adverse weather conditions of December 2010.

“Tesco has underperformed its peers, especially Asda and Sainsbury’s, with both food and non-food sales down on a like-for-like basis.”

In the UK, Tesco said its Big Price Drop campaign, which lowered prices, was not offset by a corresponding increase in volume.

“The finger of blame is already being pointed at Tesco’s much-publicised Big Price Drop campaign,” said Ibbotson.

“By offering an eye-watering £500m in discounts, the campaign certainly was an expensive gamble.”

In general merchandise, clothing and electricals, Tesco said it saw growth overall; with an improved performance in electronics, driven by strong sales of tablet computers and e-readers. Like-for-like sales remained below last year, however.

Total online sales – food and non-food – grew by more than 14%; with 1m orders placed with Tesco Direct during the period, of which over two-thirds were collected in store.

“One glimmer of hope for its UK operations came in the form of online sales, which were up 14%,” said Ibbotson. “Expect Tesco to build on this in the years ahead.”

Overseas In Asia, total sales grew by 8.1% (7.0% at actual exchange rates), with modest like-for-like sales growth impacted by slower performance in Thailand, linked to the recent flooding.

In Europe, total sales grew by 7.0% (2.0% at actual exchange rates) and by 1.0% on a like-for-like basis, excluding petrol.

In the US, Tesco said Fresh & Easy continued its strong run, helped by a successful Christmas and New Year period. Total sales grew by 41% with like-for-like sales growth of 19.3%.

“[Tesco’s] foreign operations continue to be strong,” said Ibbotson. “Its US chain, Fresh & Ready, has yet to reach profitability, but Tesco is already shining in several developing markets.

“As a truly global retailer, Tesco’s overseas strength will increasingly insulate it against rocky times at home,” he said.

“But that will not obviate the need for the board to take a long hard look at these numbers. With the UK’s economic prospects for 2012 looking so bleak, their challenge will now be to squeeze every last drop of value out of the UK business.

“Tesco again emphasises its plan to reduce cap expenditure. Perhaps this is the year the breakneck expansion of Tesco at home will end?

“The balance of power is shifting from the UK to overseas markets,” said Ibbotson.