Tesco expected to report LFL decline and slump in non-food sales

The scale of the challenges facing Tesco, Britain’s biggest retailer, will be underlined this week when it warns that like-for-like sales are falling across its global operations.

Tesco has shown signs of a recovery in the UK and reported its best quarterly performance for three years in Christmas trading.

However, like-for-like sales are understood to have slid back into decline over the past three months as the high street has remained under pressure and Tesco has seen a slump in non-food sales.

City analysts have forecast that Tesco will on Wednesday report a fall in UK like-for-like sales of up to 1pc for the 13 weeks to Saturday, May 25.

This fall in sales for the first quarter of Tesco’s new financial year comes after the company suffered a slump in post-tax profits to £120m last year due to a drop in sales, a £1bn bill to quit its loss-making US business, and an a £804m write–down on the value of land in the UK.

Philip Clarke, chief executive, missed out on a bonus and long-term share awards because of the performance, which the company said “fell short of where we wanted it to be”.

Tesco enjoyed almost two decades of relentless growth under Mr Clarke’s predecessor, Sir Terry Leahy, but the company is now suffering from under-investment in its UK business and the consequences of the failed investment into the US.

In response, Mr Clarke is spending £1bn in the UK on modernising stores, revamping own-brand food ranges and investing in new digital technology as part of a three-year plan.

However, despite a 0.5pc rise in the quarter to February 23, the performance since then is expected to demonstrate that Tesco still has much work to do in the UK against competition from J Sainsbury, Waitrose and discounters such as Aldi.

Analysts at Nomura said Tesco’s performance in the UK is being dragged down as it loses non-food sales to Amazon and online retailers.

Nick Coulter, analyst at Nomura, said: “We think the first quarter will be characterised by a lacklustre market in March, a strong Easter showing from Tesco and a more subdued, and promotion-affected, May.

“We also expect the issue of horse-meat contamination to have been a small headwind.”

As well as being under pressure in the UK, Tesco sales are falling in its international markets.

Nomura, one of Tesco’s house brokers along with Deutsche Bank, has forecast that like-for-like sales in Asia will slide by 4.6pc, while European sales could fall by 5.5pc.

The European business, including Poland and the Czech Republic, is under pressure from the fragile eurozone economy.

In Asia, Tesco is being affected by new regulations in South Korea, its biggest international market, that are restricting Sunday opening.

Clive Black, analyst at Shore Capital, said: “All in all, choppy waters still abound for Messrs Clarke & Co. However, management seems to have a firmer grasp of the tiller with a complete executive team now in place.”

Source : Graham Ruddick – The Telegraph
www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10093765/Tesco-faces-challenge-as-non-food-sales-fall-prey-to-online-rivals.html