• UK like-for-likes, exc fuel and VAT, down 1.5%
  • Q1 group sales rose 2.2%
  • International performance "robust" 
Eurozone uncertainty is weighing on Tescos clothing performance

Eurozone uncertainty is weighing on Tesco's clothing performance

Tesco, the UK's largest retailer, today (11 June) described its first quarter performance as "solid," despite seeing a drop in domestic like-for-like sales and subdued consumer confidence across Europe weighing on the performance of its clothing lines.

The supermarket giant, which issued a shock profit warning in January, reported a 1.5% decline sales at UK stores open at least a year, excluding VAT and fuel, for the 13 weeks to 26 May. Total UK sales were up 2.0%.

But it said the results were in line with expectations, and improved relative to the market as a whole. Indeed, data from Kantar shows market growth fell 1.3% to 2.4% in the first quarter, whereas Tesco's total sales growth was down just 0.3% to 2.0%.

Group sales rose 2.2% in the quarter, thanks to a "robust" international performance driven largely by Asia where all makers improved their like-for-like sales, with the exception of China.

In Europe, like-for-like sales increased by 0.4%, helped by improved performances in Poland, Slovakia and the Republic of Ireland. 

But continued uncertainty over the future of the Eurozone was reflected in reduced discretionary spending on general merchandise and clothing.

"Tesco has performed robustly in the first quarter despite subdued consumer confidence in all our markets," chief executive Philip Clarke said.

Analysts, however, are not so sure. Neil Saunders, managing director of Conlumino, comments: "From these results one message comes through loud and clear: there is no quick fix solution to the issues with Tesco's UK business and a tremendous amount of work still remains."

The UK supermarket group in April unveiled plans to invest GBP1bn (US$1.59bn) in revitalising its domestic business - including efforts to boost its clothing sales.

However, it "will take time to drive changes in consumer behaviour," Saunders notes. "Moreover, a great deal more change is still required across other aspects of the proposition, including store refurbishments, customer service initiatives, and brand and product refreshes across other parts of the range. In essence, Tesco continues to play a game of catch-up in bringing its retail standards up to scratch."

He also points out that on the international front, "there are some worrying signs that, as a whole, performance is also slowing...especially in Europe."

"Against this backdrop Tesco will need to sharpen its offer, especially on the general merchandise front, in order to stimulate sales. Our concern is that along with the UK and the US operation, which although improving remains a challenge, Tesco appears to be fighting battles on a number of fronts."

Jon Copestake, retail analyst at the Economist Intelligence Unit (EIU), adds: "Rome wasn't built in a day and it is premature to expect great things from the recent turnaround plan already. The continuing fall back in the UK comes in difficult trading conditions where factors as diverse as the weather, domestic austerity and the Eurozone crisis all seem to play a part.

"The problem is that other big retailers are making the best of things where Tesco is continuing to slide. The next two quarters will be important for Tesco. The impact of Jubilee spending as well as Euro 2012 and the Olympics will receive close attention, especially as Clarke's proposed measures begin to take hold."