Tesco Plc, (TSCO) the U.K.’s largest grocer, rose in London trading amid relief that a decline in domestic sales was no worse than expected.
The smallest drop in international sales for at least seven quarters also boosted the shares, which climbed as much as 2.5 percent to 305 pence.
“It’s not as bad as some feared, so you should see some relief,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “International is hardly strong either, but again not as weak as some feared.”
Sales at U.K. stores open at least a year fell 3.8 percent, excluding gasoline and value-added tax, in the period ended May 24, Cheshunt, England-based Tesco said today. That was the third straight quarterly drop and compared with the median estimate of 14 analysts surveyed by Bloomberg News for a 4 percent decline.
In three years at the helm, Chief Executive Officer Philip Clarke has been unable to halt a decline in Tesco’s market share as customers have deserted the chain for lower prices at Aldi and Lidl, and luxury food from Waitrose. While the CEO has replaced overly complex promotions with permanently lower prices on some lines, he hasn’t gone far enough, analysts including Shore Capital (SGR)’s Clive Black say.
“We expect this quarter to represent a low-point for Tesco, but no return to positive like-for-like sales is in sight,” Bruno Monteyne, an analyst at Sanford C. Bernstein in London, wrote in a note to clients.
Tesco shares rose 1.9 percent to 303 pence at 8:06 a.m. in London, paring their decline this year to 9.4 percent. The stock last month touched its lowest since 2004.
“As expected, the acceleration of our plans is impacting our near-term sales performance,” Clarke said in today’s statement. “The first quarter has also seen a continuation of the challenging consumer trends in the U.K., reflecting still subdued levels of spending in addition to the more structural changes taking place across the retail industry.”
Tesco’s market share has tumbled 1.5 percentage points to 29 percent in the past year, the biggest annual drop in at least two decades, researcher Kantar Worldpanel said yesterday.
The grocer not only has to contend with discounters encroaching on its patch, with Wal-Mart Stores Inc. (WMT:US)’s Asda and Wm Morrison Supermarkets Plc (MRW) also making life difficult. Both have announced 1 billion-pound ($1.7 billion) multi-year price-cutting programs, while Tesco has said it will invest at least 200 million pounds in lower prices this year.
“We believe that Tesco U.K. is increasingly perceived by more and more customers as simply too expensive versus the limited assortment discounters, Asda and potentially Morrisons, given the latter’s recent move on price,” Shore Capital’s Black said in a May 29 note. “That is a dangerous and frankly untenable place for a mass-market leader to be.”
Price cutting and a growing customer preference to shop at discounters are weighing on industry growth. The market expanded by 1.7 percent in the 12 weeks ended May 25, the slowest pace in at least 11 years, Kantar Worldpanel said yesterday.
Tesco’s three-month sales fell 3.1 percent, the most since Kantar data started in 1994, the researcher said. By contrast, Asda gained market share and sales in the same period.
International same-store sales declined 2.2 percent in the quarter, Tesco said today, less than the previous period’s 3.2 percent slide. Asia witnessed an improvement, Tesco said, while sales rose in the Czech Republic, Hungary, Poland and Turkey.
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