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By
Reuters
Published
Jun 26, 2015
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Tesco shows signs of recovery in key home market

By
Reuters
Published
Jun 26, 2015

Britain's biggest supermarket operator Tesco said sales had declined less than expected in its first quarter, indicating a tentative recovery in its key home market could be starting to move on to a stronger footing.

Tesco, which endured a horrendous 18 months marred by profit warnings, a record statutory loss and an accounting scandal, said on Friday sales at British stores open for more than a year fell 1.3 percent over the 13 weeks to May 30, against analyst forecasts of a decline of between 1.6 percent and 3 percent.

Shares in Tesco, down 21 percent over the last year, were up 3.4 percent by 0810 GMT, hitting their highest in more than a month. Smaller rivals Sainsbury and Morrison rose 2.4 percent and 1.1 percent respectively.

Chief Executive Dave Lewis said UK like-for-like volume had increased 1.4 percent, with transactions up 1.3 percent, as 180,000 more customers shopped with Tesco.

Lewis attributed the performance to lower prices, better product availability and improved customer service, which he said had resulted in more people buying more goods, albeit at lower prices.

"Whilst the market is still challenging and volatility is likely to remain a feature of short-term performance, these ... results represent another step in the right direction," said Lewis. "We do feel we are more in control than perhaps we were a year ago ... but nobody ever said this was going to be quick or easy."

The result follows a 1.7 percent sales fall in the fourth quarter of its previous financial year and compares favourably with rivals, beating Asda (down 3.9 percent), Morrison (down 2.9 percent) and Sainsbury (down 2.1 percent) in their most recent quarters.

"There is much to applaud in what Lewis has done to bring calm and order to Tesco ... However, he and his new management team ... have much work to do," Shore Capital analyst Clive Black said, maintaining his forecasts and "hold" rating.

PRICE WAR

All of Britain's big four grocers are battling to win back ground lost to discounters Aldi and Lidl. Locked in an industry price war, they are also dealing with commodity-led deflation and changes in shopping habits away from the big weekly shop.

Lewis, a former Unilever executive brought in last September to lead a turnaround, is cutting costs and selling assets as he seeks to reduce Tesco's debts, regain its investment-grade credit rating and re-build its credibility.

In April Tesco reported a 2014-15 group trading profit of 1.4 billion pounds, down nearly 60 percent, and said it may struggle to hit even that level this year.

"Achieving the 1.4 billion (again) still feels not like a walk in the park," Lewis said on Friday ahead of its annual shareholders' meeting, the first chance for investors to quiz the board directly since the accounting scandal, which related to wrongly booked payments from suppliers, broke in September.

Shareholders could revolt over a 1.2 million pound ($1.9 million) payoff to former CEO Philip Clarke and a 1 million pound payout to former finance chief Laurie McIlwee, who resigned in April last year.

Lewis declined comment on possible disposals until something had been agreed. The group is selling its data business Dunnhumby and, according to sources familiar with the matter, has hired HSBC to explore the sale of its South Korean unit, Homeplus, the group's biggest business outside Britain.

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