By Kathy Gordon
LONDON--Supermarket chain Tesco PLC (TSCO.LN) Wednesday suffered
another setback in its turnaround efforts as sales slipped in its
main home market and its international operations continued to see
declining revenue, increasing pressure on Chief Executive Philip
Clarke.
Mr. Clarke pledged GBP1 billion ($1.53 billion) to revitalise
the U.K. business, responsible for two-thirds of sales and profits,
by revamping stores and increasing staffing levels to perk up
declining sales after a shock profit warning in January last
year.
It seemed to be working, with sales edging up 0.5% between
November and February, the strongest sales growth for two years.
But Tesco said Wednesday that sales in U.K. shops open for more
than a year fell 1% in the 13 weeks to May 25, excluding sales tax
and fuel, even as total sales in the U.K. rose 0.1%. Total sales
across the group rose 1.8% in the period, including fuel. Like many
U.K. companies, Tesco doesn't report full sales or net profit
figures on a quarterly basis.
As consumers have seen their incomes shrink, U.K. grocery market
leaders have lost market share to discounters like Aldi and Lidl at
one end of the spectrum, while Waitrose, the upmarket chain owned
by John Lewis Partnership, has also managed to grow by offering
value items and innovative food products.
In the midst of the general consumer downturn last year, Mr.
Clarke admitted that the U.K. business had been run too lean,
cutting costs and corners until shoppers no longer chose the chain
for its value or its price.
And as Tesco has focused its turnaround efforts in the U.K., it
has cut back on extensive international operations, exiting its
Fresh & Easy operations in the U.S. and leaving Japan. Others
markets are also under pressure.
Large format stores have fallen out of favor in central Europe
where consumers are feeling the pressure from the euro-zone crisis
and sales in Europe, including central Europe and Ireland, fell
5.8% on a same-store basis including fuel.
Meanwhile in Asia, which has been the powerhouse of Tesco's
international operations, restrictive trading hours in South Korea
continued to have an impact on sales, and across the region
same-store sales fell 3.8% including fuel.
Tesco blamed the reversal of its fortunes in the U.K. on poor
sales of general merchandise and the residual effect of the horse
meat scandal, which dented sales of frozen foods and ready-made
meals.
Tesco was the first supermarket to admit to and apologise for
finding horse meat in some of its own-brand meals, although the
problem escalated well beyond the supermarket to encompass almost
all the grocers and many food suppliers across Europe.
Still, the company insisted its turnaround was on track.
"Importantly to the objectives we have set out for sustainable
and disciplined growth, customer perceptions are improving across
all aspects of the shopping trip in the U.K.," Mr. Clarke said.
Shares closed Tuesday at 364 pence.
Write to Kathy Gordon at kathy.gordon@dowjones.com
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