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Tesco 'back on form' as Christmas sales beat City forecasts Tesco 'back on form' as Christmas sales beat City forecasts
(about 7 hours later)
Tesco is "back on form", according to its chief executive, Philip Clarke, after the supermarket giant emerged as a winner from the Christmas trading period. Tesco is "back on form", according to its chief executive, Philip Clarke, after the supermarket giant claimed victory over the Christmas trading period, sparking counter-claims from arch-rival Sainsbury's.
Strong food sales and a big increase in online shoppers drove like-for-like sales up 1.8% in the six weeks to 5 January, smashing expectations of 1% growth. In a riposte to Sainsbury's claim on Wednesday that it was the "clear winner" of the festive season after posting a 0.9% increase in like-for-like sales, Tesco announced a 1.8% rise in like-for-like sales – although that was over a shorter six-week period.
The performance beat Sainsbury's 0.9% growth – although that was over a longer 14-week period – calling into question chief executive Justin King's claims that Sainsbury's was the "clear winner" of the festive trading period. The seething rivalry between the two erupted further, when a Sainsbury's executive sent analysts an email questioning Tesco's figures. According to Sky News, the email accused Tesco of being "a bit disingenuous" with its figures because they use an accounting guideline that includes payments with Clubcard vouchers. A Tesco source said the group had used the same standard in past results statements.
Tesco shares rose 2% in early trading to 357p, while Sainsbury's dropped by more than 1% to 326p. Despite the row, Tesco shares closed nearly 2% higher at 353.4p, while Sainsbury's shares headed down 1% to 325.7p.
John Ibbotson, director of the consultants Retail Vision, said: "The crucial like-for-like number is flattered somewhat by Tesco's dire performance over Christmas 2011, but it does confirm both a return to form – and a decisive victory over rivals Sainsbury's and Morrisons." John Ibbotson, director of the consultants Retail Vision, said: "The crucial like-for-like number is flattered somewhat by Tesco's dire performance over Christmas 2011, but it does confirm both a return to form and a decisive victory over rivals Sainsbury's and Morrisons."
A year ago, Britain's biggest retailer shocked the City with its first profit warning in more than 20 years after a poor performance in its core UK operation, and set out a three-year plan to turn the business around. Last January, Britain's biggest retailer shocked the City with its first profit warning in more than 20 years, leading to the departure of Richard Brasher as head of its UK arm. Clarke set out a three-year plan to turn the group around and took over day-to-day running of the UK business.
On Thursday, Clarke cautioned that the group still had a way to go. "This was only a six-week period. Christmas is just one step on the way. It shows that with the right plan and right focus we can improve our performance." On Thursday he stepped back from that post, announcing the appointment of Tesco veteran Chris Bush as UK managing director. "With the UK plan under way it's right for me to step back a little from day-to-day management of the UK business," he said.
He would not say whether like-for-like sales would continue to grow. "The future is somewhat uncertain. You've seen how hard-pressed consumers are. I don't know what like-for-likes are going to be. I expect we will become more competitive." "We're back on form, with like-for-like sales growing at the strongest rate for three years." But he warned that there was still much to be done. "This was only a six-week period. Christmas is just one step on the way."
There was some concern that Tesco achieved such strong sales growth through heavy discounting and the use of vouchers, sacrificing 1% of its profit margin. He would not say whether sales would continue to grow. "The future is somewhat uncertain. You've seen how hard-pressed consumers are. I don't know what like-for-likes are going to be. I expect we will become more competitive."
Clarke said: "We always said we'd do more coupons. But the improvement is broadly based, it's across all formats; it's in food, general merchandise and clothing. That shows we got it right at Christmas." There was some concern among analysts that Tesco had cut one percentage point from its profit margin in order to win such strong sales growth, with heavy discounting and the use of vouchers. Clarke said: "We always said we'd do more coupons. But the improvement is broadly based, it's across all formats; it's in food, general merchandise and clothing. That shows we got it right at Christmas."
The company said conditions remained tough and customers were opting for a mixture of high-end and value products. Tesco Finest and the recently relaunched Everyday Value range outperformed the rest of the business, with own brand Premier Cru champagne and turkeys proving popular. Conditions remained tough, he said, noting that customers were opting for a mixture of high-end and value products. Tesco Finest and the recently relaunched Everyday Value range outperformed the rest of the business, with rapid sales of own brand Premier Cru champagne and turkeys.
Sales of general merchandise – which includes clothing and other non-food products – was better than in the third quarter but still dragged on growth. Clarke said there was still an "enormous amount to do" in this area, both in stores and online. Across the group, total sales grew by 4.2%, including VAT and petrol. Sales of general merchandise – which includes clothing and other non-food products – was better than in the third quarter but continued to drag on growth. Clarke said there was still an "enormous amount to do" in this area, both in stores and online. Group sales in the period rose 3.9%, excluding petrol.
More UK shoppers than last year opted for home delivery over making the trek to crowded Tesco stores. Online food sales grew by 18% in the six weeks to 5 January – following 19% growth the previous year – and the group delivered to half a million customers in the week running up to Christmas. The popularity of "click & collect" continued to grow, with nearly 5% of online shoppers opting for the service just a year after it launched. Shoppers increasingly opted for home delivery, sending online food sales up by 18% in the six weeks to 5 January. That follows 19% growth the previous year and resulted in deliveries to half a million customers in the week running up to Christmas. The popularity of "click & collect" continued to grow, with nearly 5% of online shoppers opting for the service just a year after it launched.
Overseas, Tesco sales grew by 3.4%, driven by sales in Asia, which rose by 7.6% from last year when business was heavily affected by flooding. But sales declined 0.6% in Europe as the region grappled with the ongoing eurozone crisis. Clarke said: "Europe's economic headwinds continued to hold back growth, with no signs conditions are improving."Overseas, Tesco sales grew by 3.4%, driven by sales in Asia, which rose by 7.6% from last year when business was heavily affected by flooding. But sales declined 0.6% in Europe as the region grappled with the ongoing eurozone crisis. Clarke said: "Europe's economic headwinds continued to hold back growth, with no signs conditions are improving."
The company announced a shake-up of its management team with the appointment of Tesco veteran Chris Bush as UK managing director. Clarke had been juggling the role with running the business over the past nine months.
"With the UK plan under way it's right for me to step back a little from day to day management of the UK business," he said. "This will give me more time to dedicate to my other responsibilities." But he said he would not cede all responsibility for the UK, which represents 60% of Tesco's business.
"My job is to set the vision and the strategy."