Progress on the home front, though slow, only partially offsets analysts’ concerns over Tesco’s international ventures, as it announced its half-year results today.
Tesco revealed its UK like-for-like sales excluding fuel fell 0.5%, while group profits fell 24.5%, as the retailer took a hit on its European and Asian businesses.
“Tesco is clearly undergoing a period of transition in both its UK and overseas businesses and the resultant pressure on profitability comes as no surprise,” said Kantar Retail’s director of retail insights Bryan Roberts.
“Just as there is a sense that Tesco is putting its UK house in order, the international picture looks increasingly worrying”
Neil Saunders, Conlumino
“The retailer will be displeased by the fact that it continues to cede market share to Sainsbury’s, Waitrose and the discounters in the UK, but our sense is that Tesco is nearing the end of a regrouping phase that will see it kick on during the last quarter of 2013 and into the New Year.”
Roberts predicted that progress in multichannel, private label and innovation would lead to a resurgent Tesco in 2014, although he said further global reorganisation could not be ruled out.
Clive Black, analyst at Shore Capital, added: “Philip Clarke must be thinking about entering the Rio Olympics weight-lifting competition given the amount of ‘heavy lifting’ that he has had to engage in over the last three years. However, we believe that he has undertaken a lot of necessary, hard and good work to date, which positions Tesco better for the future, and most critically in our view, creates the position whereby it becomes a cash-generative and more shareholder-friendly entity.
“That said, the most notable feature in this update is that the performance in Europe was pretty awful.”
European profits fell by 70.8% in the first half, Tesco revealed today.
David Gray, analyst at Planet Retail, said that Tesco’s UK figures had been hit by “subdued general merchandise sales”. “Nevertheless, food sales held up, fuelled by warm weather in July/August alongside a new food-focused ‘Love Every Mouthful’ marketing campaign which launched during the half,” he said. “We expect to see further positive news on food sales in the months ahead as improvements to product ranges come through.”
Neil Saunders, managing director of Conlumino, hailed Tesco’s progress on the UK front, but warned the international picture was less rosy: “There are a number of deep-seated issues on the international scene that need to be addressed. Just as there is a sense that Tesco is putting its UK house in order, the international picture looks increasingly worrying.”
“No matter how fast her captain bales, the Tesco ship is still taking on water,” added John Ibbotson, director of Retail Vision. “As soon as one leak is plugged, another opens up. The ill-starred American adventure might be over, but Phillip Clarke is now battling to stem the tide at home.
“UK like-for-like sales, excluding petrol, fell by 0.5% - a woeful performance for Tesco’s core market.”