Tesco Q3 sales fall as consumers face pressure - UPDATE

4th Dec 2013 12:21

- Q3 LFLs down 1.5 per cent- Grocery market more difficult since summer- In line with FY board expectations Woes at Tesco continued as the British supermarket blamed a tough grocery market for lower UK third quarter sales, sparking City concerns about the success of its 1 billion pounds recovery drive.Tesco said like-for-like sales in the period had fallen 1.5% due to a grocery market that had become more difficult since the summer due to pressure on consumer finances. The company's total UK sales lifted 0.9%.Group sales for the thirteen weeks ending November 23rd increased 0.6% at actual exchange rates and 0.2% at constant rates, excluding petrol. Including petrol, group sales decreased 0.8% at actual exchange rates and 1.2% at constant rates.After pulling out of its US Fresh & Easy business, Tesco has embarked on a £1bn overhaul of its UK ranges and stores to fend off tough competition from rivals such as Sainsbury's, Asda and Morrisons and discounters such as Aldi and Lidl.Analysts expect Tesco's earnings to fall this year. At November 8th, the City was forecasting group trading profit in 2013-14 of £3.39bn, against £3.45bn in 2012-13.At 11:55 in London, Tesco's shares were down 2.25p at 339.35p.Analysts said the results were understandable given the challenge that Tesco faces in overhauling its UK business while quitting under-performing overseas operations, but they warned that investors wanted results soon.Joe Rundle at ETX Capital said: "Heading into 2014, there will be more pressure on Tesco to demonstrate the effectiveness of its strategy or else the market will continue to lose confidence in the retailer and its management."Analysts at Shore Capital said the trading update had put the broker's 'buy' recommendation on the shares under pressure, although they pledged to keep it for the time being, given Tesco's recovery strategy, its relatively cheap valuation and the prospect of an upturn in the European economy next year.They said: "Tesco UK's trade, in what is a surprisingly and worryingly weak British grocery market through the autumn - see BRC-KPMG & Nielsen data, causes us concern and pressurises our positive stance."Chief Executive Philip Clarke claimed the change in performance from the second to the third quarters broadly matched the weaker growth in the UK grocery market as a whole."Consumers are still managing the effects of an unprecedented period of declining real incomes and a higher cost of living," he said."The average spending power of a typical UK household is around 10% below its 2007 peak, in real terms."Clarke said measures to boost the business, such as general merchandise improvements and its decision to significantly reduce new openings, had also held back short-term sales.He explained people were responding positively to the re-launch of the group's premium Finest food range, over 100 more store refits in the quarter and further investment in fast-growing online groceries.Clarke said overseas near-term sales had been tough, most notably in Thailand, but its performance in Poland and Turkey had improved following action in the first half."We are confident that our strategic priorities - strengthening the UK business, establishing multichannel leadership and ensuring capital discipline - are the right ones and that they will drive long-term value and returns," Clarke added.Sales at Tesco Bank increased by 0.9%, with an increase in interest income from strong lending growth offset by reduced fee income across its insurance business. Clarke concluded: "Despite the challenging conditions in many of our markets, we are performing in line with market expectations for the full year."PW