Tesco shares slump as Christmas sales disappoint
LONDON—Tesco, Britain’s biggest retailer by sales, saw its share price tumble Thursday after warning that it will see minimal profit growth this year following one of its worst Christmas performances in years.
Tesco PLC’s woes, which were replicated in updates Thursday from the likes of chocolatier Thorntons PLC and Mothercare PLC, will likely add to fears over the state of the British economy—one in seven pounds spent by British shoppers is said to be spent at one of Tesco’s 2,700 stores.
The retailer said the 2.3 percent decline in like-for-like sales, excluding the national sales tax and gasoline sales, in the six weeks to January 7 was below its expectations and “disappointing.” The decline over the crucial Christmas trading period was largely driven by food sales and was far bigger than the 0.8 percent drop consensus in the markets.
Tesco conceded that there will be a knock-on impact on profits.
Though it told investors that underlying pretax profit and earnings per share for 2011/12 will be broadly in line with market consensus forecasts, it warned that group trading profit growth will “be around the low end of the current consensus range.”
It also said trading profit growth for the 2012/13 financial year will be “minimal” as it continues its drive to deliver what it calls “an even better shopping trip for customers, particularly in Britain.”
The reaction to Tesco’s update was savage—its shares were down around 14 percent to 3.30 pounds by midmorning London time, wiping off around 4 billion pounds from its market value.
“This was a deeply underwhelming performance by Tesco in its home market—and all the more grave given the adverse weather conditions of December 2010,” said John Ibbotson, managing director of the retail consultancy, Retail Vision.
The company triggered a price war at the end of September by lowering the cost of 3,000 everyday products, for a total of 500 million pounds ($765 million). It said the number of customers drawn in by its latest promotion had not been enough to offset the lower prices.
Earlier this week, research figures revealed Tesco’s market share for the 12 weeks ending on Christmas Day dropped from 30.5 percent a year ago to 30.1 percent.
“We deflated our prices,” chief executive Philip Clarke told BBC Radio. “Our price inflation’s half that of the market. But I’ve got to acknowledge we backed off some of our promotional and couponing activity too early.”
Despite its problems in Britain, where the economy has flatlined for the best part of a year now, the company was pleased with its performance overseas, where it is one of the biggest retailers. Overseas sales were up 8.2 percent during the period after strong performances in key regions such as Asia and Europe.
Tesco’s performance over Christmas was worse than its peers though many smaller more niche retailers, such as Thorntons, Mothercare and CD and DVD retailer HMV are clearly showing the strain too.
“Tesco’s competitors had rather more success over the period, the outlook remains threatening and the company has been forced into something of a profits warning for the year,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
Rival retailer J Sainsbury PLC reported a 2.1 percent increase in like-for-like sales, excluding fuel but including sales tax, in the 14 weeks to January 7. Analysts estimated that sales would have been flat if the sales tax was taken out of the figures.
Marks & Spencer PLC said like-for-like sales in the 13 weeks to December 31, excluding the sales tax, rose a modest 0.5 percent as buoyant demand for its up-market food — always popular at Christmas — helped offset declines elsewhere, particularly of clothes and household items.
And WM Morrisons Supermarkets PLC, which promotes itself as a value retailer, said its same-store sales grew 0.7 percent excluding fuel over Christmas and noted that customers were substituting luxury items with cheaper alternatives — sparkling wine instead of champagne, for example.
Overall, the British Retail Consortium, retail’s main lobby group, found that that like-for-like sales in December in Britain were 2.2 percent higher than the same month in 2010, when heavy snow deterred many holiday shoppers.
