Bloomberg News

Tesco Sales Growth Misses Estimates as Electronic Sales Fall

June 14, 2011

(Adds details on non-food in first paragraph, executive comments from third, analyst in fourth.)

June 14 (Bloomberg) -- Tesco Plc, the U.K.’s largest grocer, reported first-quarter sales growth that missed analysts estimates amid “constrained demand” for general merchandise items such as electronics.

U.K. same-store sales rose 1 percent, excluding gasoline and including value-added tax, the Cheshunt, England-based retailer said in a statement today. That missed the 1.5 percent median estimate of nine analysts surveyed by Bloomberg, and compares with the fourth quarter’s 0.2 percent increase. Sales of non-food items declined 5 percent on that basis.

Sales of electronic items, which account for about a third of all non-food sales, are still “down and struggling,” Chief Financial Officer Laurie McIlwee told journalists on a call today. Chief Executive Officer Philip Clarke is trying to revive sales of non-food items and plans to add more own brands to lift sales in the company’s domestic market.

“The numbers are modestly disappointing,” Chris Hogbin, an analyst at Sanford C. Bernstein, said by phone. Improvements in non-food ranges “‘won’t happen overnight,” he added. Hogbin has an “outperform” rating on the stock.

Tesco dropped as much as 5.95 pence, 1.5 percent, to 401.3 pence and traded at 402.1 pence as of 8:25 a.m. in London trading. The stock has declined 5.4 percent this year, compared with rival J Sainsbury Plc’s 13 percent drop.

‘Cautious’ Consumers

“Customers are cautious and many are shopping on a smaller budget due to fuel prices,” McIlwee said. The “British consumer, if you look at sentiment, has not really improved at all,” he added.

The non-food team of executives has been strengthened but improving the product range takes longer to correct, the executive said. Sales of clothing, toys and outdoor leisure has improved, he added. “The range is gradually getting better but the timeframe that you can improve non-food frankly take a lot longer,” McIlwee said.

Food Sales

A better range and pricing in foods, such as wine, was the driver of the same-store sales increase, McIlwee said. The higher-priced own-brand Finest range reported a 10 percent gain in same-store sales as customer looked for an alternative to eating out.

“Nothing’s getting worse but it’s not getting significantly better,” he added.

International sales including petrol rose 2.8 percent. In the U.S, where same-store sales climbed 11 percent, internal expectations is for double-digit growth to continue, McIlwee said, adding Tesco is on track to break even at its Fresh & Easy chain in the country by 2013.

In Asia, which includes the Homeplus stores in South Korea, Tesco had same-store sales growth of 3.2 percent, while Europe posted growth of 2 percent with improvements in central Europe and Turkey offsetting weakness in Ireland.

“International growth is solid whilst the U.S. should reassure investors focused on the breakeven point,” Matthew Truman, an analyst at JPMorgan Cazenove, said in a report. He has an “overweight” rating.

Tesco’s outlook for the company as a whole remains unchanged and the group is performing “in-line” with market expectations, Clarke said in the statement.

Tesco’s first quarter covered the 13 weeks ended May 28.

--Editors: Celeste Perri, Marthe Fourcade

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.


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