Tesco’s disappointing UK Christmas update resulted in a 4% drop in its share price last Thursday but the grocer insisted its performance was a blip because of the snow.
The food giant reported UK like-for-like sales excluding petrol up just 0.6% for the six weeks to January 8, when total sales rose 4.2%.
Tesco executive director Lucy Neville-Rolfe said that the snow before Christmas meant that customers could not easily get to its out-of-town Extra stores so non-food sales took a hit.
Tesco estimated it missed out on £50m of sales because of the bad weather. Food sales remained strong, helped by a good performance from the top-end Finest range, with underlying growth of 1.7%. That was dragged down by a 1.5% slip in non-food and Tesco said the bad weather had wiped 1% off Tesco’s UK like-for-like figure.
The performance was below expectations and meant Tesco came in last place against its competitors. Including VAT but excluding petrol Sainsbury’s reported like-for-like jump of 3.6% and Morrisons 1.9%.
Neville-Rolfe said Tesco had more out-of-town hypermarkets than competitors and was therefore more affected by the snow.
The City was disappointed. Matrix analyst Tom Gadsby said Tesco’s UK business “has been struggling in the face of more organised competition for some time”.
Evolution analyst Dave McCarthy maintained Tesco “lost momentum in the UK some time ago, and despite a number of high-profile attempts, it has failed to regain it”.
Other brokers gave Tesco the benefit of the doubt. Shore Capital analyst Clive Black said: “The good ship Tesco UK is certainly not broken, being far and away the most profitable retail business in these isles with still industry leading margins.”
However, he conceded: “After several quarters of relatively subdued performance, to a degree reflecting its sheer scale, we are encouraged by the increased focus that the new team [under new UK boss Richard Brasher] may bring.”
Tesco’s international arm performed well over Christmas. Total sales climbed 14.2%. In Asia, total sales rose by 24.2%, with strong results from Thailand and China. In Europe total sales advanced by 5.6%, or 9.1% at constant exchange rates. Tesco said like-for-likes were positive in every European country.
In the US, Fresh & Easy recorded total sales up 36.9%. But Gadsby said: “To maintain overseas growth, Tesco is selling UK property to fund new space, which we believe will become dilutive to margins.”
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