Tesco saw sales decline in the UK and abroad

Tesco saw sales decline in the UK and abroad

Tesco this morning (9 January) reported its online clothing sales had soared over the Christmas period - but a decline in UK like-for-like sales pushed shares down by nearly 4%. Overall, analysts gave a downbeat view of the update, with a general consensus that progress is being made but more work needs to be done to improve Tesco's UK performance.

Cantor analyst Mike Dennis:
"Tesco’s Christmas trading update, covering the 6 weeks from 23rd November to 4th January, was as disappointing as we and the market expected. FY14 group trading profit guidance was in the range of GBP3.16bn to GBP3.41bn, giving plenty of room to disappoint on UK margins given we expect a 30bps+ fall in H2 on these lower sales figures.

"We still maintain our view that on these weaker Christmas sales figures indicate that the H2 UK trading margin will fall to or below 5%. This, we believe, is due to total operating costs growing at c.3% (after cost savings) given new space costs, higher energy, business rates and rents that cannot be covered by limited total sales growth. Our view is that management still has a lot of explaining to do over the poor relative UK sales performance."

Kepler analyst Fabienne Caron:
"Tesco UK’s LFL numbers came out in line with expectations. Abroad the performance in Europe is better than expected...due to positive LFL in Poland following the recent price cuts and Hungary. In Asia, in contrast, the performance is below our expectations. 

"The company expects to meet the consensus range of GBP3.1bn to GBP3.4bn trading profit with a mean at GBP3.3bn. The wording is slightly different to Q3, which highlights to us that the profitability seems more under pressure. At the time of Q3, the company wrote “we are performing in line with market expectations for the full year” while it now writes “we now expect to report FY results within the range of current market expectations”.

Hargreaves Lansdown Stockbrokers' head of equities Richard Hunter:
"Tesco for the moment remains a 'jam tomorrow' stock, although there are clear signs of progress being made.

"With the turnaround remaining a work in progress, investors have tended to shop elsewhere. As such, the share price has seen a 7% decline over the last year, as compared to an 11% hike in the wider FTSE100. The consequence is that whilst it can be seen that eventual progress may be made, the meantime market consensus for Tesco is no more than a hold."

Conlumino retail consultant George Scott:
"Tesco’s decline in sales over the Christmas period, while anticipated, is towards the negative end of general forecasts. The grocer continues to be negatively impacted by difficult trading conditions in a market where volume growth has become increasingly difficult to achieve, amid weak consumer demand and a flight towards smaller retailers at the value and premium ends of the spectrum. While positive strides are being made, particularly in relation to stores and product, this update will only intensify scrutiny of CEO Philip Clarke’s turnaround plan to Build a Better Tesco, with the benefits yet to bear fruit.

"Tesco is continuing to consolidate merchandising of its non-food offer, moving away from lower margin areas such as flatscreen TVs to more lucrative areas such as homewares and fashion-led categories. Multichannel progress is evident here too, through marked gains in online orders through Tesco Direct; while 70% of online general merchandise orders were collected instore via Click & Collect services."

Shore Capital analyst Clive Black:
"Following this update we are expecting to again marginally reduce our trading profit expectations due to weaker than anticipated UK sales; we expect to cut trading profits by cGBP50m for 2013/14F (c2.1%), which we would expect to filter correspondingly into CPTP and EPS estimates for Tesco (29.8p). We would expect market forecasts to be shaved too, albeit outliers may have to upgrade.

"After inflation, which the BRC-Nielsen data for November 2013 was measured at 1.7%, Tesco UK has experienced substantial same-store volume decline. Shore Capital estimated UK LFL sales within a range of minus 1% to minus 2%."