Tesco quarterly sales expected to decline

RETAILER NEWS

Reuters/ Fin24 - Jun 4th, 08:09

London - Britain's biggest retailer, Tesco , is expected to slip back to an underlying sales decline when it publishes first-quarter trading figures on Wednesday, raising doubts about a costly recovery plan for its home market. 

Analysts are forecasting sales to have fallen 0.5 to 1% at British stores open more than a year, excluding fuel and VAT sales tax, for the 13 weeks to May 25, according to a Reuters poll.

That would be a reversal of the rise of 0.5% in the fourth quarter of the previous financial year, which was Tesco's best quarterly outcome in three years.

Tesco, whose profit fell for the first time in two decades in the year that ended February 23, has spent £1bn on a fightback plan for Britain, where it makes over 60% of revenue and profit.
Its turnaround plan has focused on more staff, refurbished stores, revamped food ranges and price initiatives - all aimed at reversing years of underinvestment and halting a loss of share to "big four" rivals as well as discounters like Aldi and upmarket player Waitrose.

A squeeze on shoppers' incomes, poor weather, Europe's horsemeat scandal and a greater focus than rivals on non-food items are likely reasons for the expected drop in first-quarter sales at Tesco, the world's third-biggest retailer after Wal-Mart and Carrefour, analysts said.

Tesco's shares, up 21% over the last year, were the biggest fallers on the blue-chip FTSE 100 index, down 2.5% by 14:30 on Monday.

Britain's supermarkets, despite their focus on essential goods, have been hurt by the economic downturn and are battling for market share.

Tesco has been hit more than rivals, in part because it sells more discretionary goods like homewares and electricals where shoppers have been cutting back most.

Analysts reckon Tesco also suffered in its first quarter because poor weather meant shoppers shied away from seasonal ranges and said trading may have been hit by the discovery across Europe of horsemeat in products labelled as beef.

Tesco was one of several companies forced to withdraw some goods and apologise to customers.

"We believe Tesco is still struggling to change consumer perceptions of quality and price ... and that non-food sales ex clothing are continuing to act as a drag on the business," said Espirito Santo Investment Bank analyst Caroline Gulliver.

Last month Britain's number four grocer, Wm Morrison, posted a 1.8% fall in first quarter like-for-like sales, while number two, Wal-Mart's Asda reported a 1.3% rise, albeit for different trading periods.

Number two, J Sainsbury, is scheduled to make a trading update on June 12.

As well as falling sales in Britain, analysts expect Tesco to report further like-for-like declines in central Europe, hit by recession in the euro zone, and in Asia where it has been hindered by restrictions on trading hours in South Korea, its largest overseas market.

"The UK still lacks momentum and international is going from bad to worse," said Investec analyst Dave McCarthy.

In April, Tesco wrote down the value of its global operations by $3.5bn and confirmed it would exit the United States.