Tesco Christmas sales worse than expected but FY in line - UPDATE

9th Jan 2014 07:02

- Total sales down 1.2 per cent due to weaker market- Full year profits still in line- Online, refreshed stores and Europe provide upsideLike-for-like sales slipped 2.4 per cent during the festive period for Tesco in what has proved to be a challenging time for all the large UK grocers. The group was expected to report falling LFL sales of between 1.0% and 2.0%. Providing encouragement, convenience stores enjoyed like-for-like growth, recently refreshed megastores have 'significantly outperformed', online orders have increased and overseas performance has improved.Looking forward, the company said that it still expected to report full year (FY) profits within the range of current market expectations, which it sees as being in between £3.16bn to £3.42bn.Chief Executive Philip Clarke said further weakness in the UK grocery market, which saw Sainsbury's on Wednesday reveal marginal growth and Morrisons deliver a decline on Thursday, had weighed equally on its shoulders despite its investment.Group sales in the six weeks to January 4th declined by 1.2% including petrol or 0.6% excluding petrol.Broker Panmure Gordon said it would define the update as "OK", with UK LFL sales in line with expectations, Asia at the bottom end of expectations, and Europe better than expected. Clarke added: "Our ongoing work to Build a Better Tesco in the UK is also driving continued improvements for customers, although the effects are being masked in the short term by the strategic changes we have made to improve the long-term sustainability of our business - the transformation of our general merchandise business and the significant reduction in our new store opening programme."The Build a Better Tesco plan, which includes store refurbishments, improved ranges and prices, more store staff and a better online offer, saw its own-brand offer outperforming branded products and recently refreshed large stores continue to significantly outperform.Tesco emphasised that increasing numbers of customers shopped across more than one channel this Christmas, with online sales up 14% to £450m in the period, with general merchandise stronger than grocery thanks to a strong clothing performance. The Tesco Express convenience store business enjoyed positive like-for-like sales growth.Total international sales were down 0.7% at constant exchange rates, a 2.2% decline at actual rates and including petrol, as foreign exchange rates impacted both of its regions negatively.While Asia saw slightly weaker like-for-like sales performance than the third quarter, every European market delivered better like-for-like sales than the third quarter, with growth in Poland and Hungary."Tesco maintains it sees its FY trading profit within a still fairly wide range of expectations, and although we are slightly below consensus we think it is prudent to trim our 2014 forecast by a further 1% today, although leave our 2015 forecast unchanged," said Panmure analyst Graham Jones Tesco, mainly due to Asian weakness.Clive Black of Shore Capital also cut his forecasts, which he said was for the following reasons: "We need more confidence in the robustness of Tesco's forecasts. We need to see stronger evidence of recovery in the UK. Without the above we cannot see the promise of strong free cash flow generation, as anticipated and aspired, emerging."OH