Tesco's Christmas sales disappoint

Tesco CEO Philip Clarke found a lump of coal in his stocking this morning as the supermarket giant reported a drop in festive sales.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Tesco’s results are out and, just as forecasters forecasted, they are pretty subdued. Sales at UK stores open over a year fell 2.3% (excluding fuel and VAT) in the six weeks to January 7 against a third quarter decline in like-for-like sales of 0.9%.

This is becoming a nasty habit for Tesco, which is heading towards its fifth quarter of shrinking sales. And profits aren’t looking too great either. As Clarke spelled out in his company statement today: ‘We have seen more strain than anticipated on our profitability during the important seasonal trading period.’ And Tesco’s business brains haven’t the foggiest how to reverse the trend later this year, either: ‘We expect Group trading profit growth to be around the low end,’ he admits.

Clarke was quizzed by the BBC this morning on the failure of his ‘Big Price Drop’ initiative: why did Sainsbury’s ‘live well for less’ campaign work while Tesco’s £500m price-cutting push fizzled? Clarke was defensive: ‘We chose not to hit our customers with a blizzard of money off coupons at Christmas,’ he said. ‘We know from our experience around the world that makes us a stronger business.’ Although, he also admitted, ‘We backed off some of our promotional activity too early.’

Admittedly, Tesco is still in pretty good shape. The supermarket owns more than a quarter of market share in this country and has reported decent expansion in overseas markets. Like-for-like sales are up around a percentage point in both Europe and in Asia, and the US saw 19% growth in like-for-like sales over Christmas.

That looks great on paper, but the group was actually forced to mothball 12 Fresh & Easy stores in California over the past month due to weak local demand. ‘The residents didn’t come,’ says Clarke of the vast new residential developments in California, Arizona and Nevada (where Tesco, unfortunately, set up shop).

Still, it’s the UK that’s proved the thorn in Clarke’s side today. ‘We are disappointed with our seasonal trading performance in the UK,’ concluded the Tesco chief. And investors concur. As a result of today’s announcement, shares in Tesco plc are down 10%.

Conversely, online shopping brand Ocado has seen a 14% jump in its shares this morning. It had a very merry Christmas, with a 22% increase in sales. Overall, sales rose 17% on the previous year to £643m for the year to November.

Perhaps Tesco’s in-house analysts should read the writing on the wall. With Ocado’s online bonanza and Tesco’s own online business faring well in the UK (Tesco reported a 14% jump in online orders across both food and non-food), perhaps giving the e-commerce business a little more love wouldn’t do Tesco any harm this year.

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