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Tesco's Christmas sales fall less than expected

The grocer’s UK like-for-like sales fell 0.4% in the third quarter but rose 0.1% in the six-week festive period

Tesco PLC -

Supermarket Tesco PLC (LON:TSCO) sales fell 0.9% on a like-for-like (LFL) basis over the 19 weeks to 4 January, despite enjoying better than expected UK growth over Christmas.

The FTSE 100 grocer’s UK, Irish and wholesale LFLs rose 0.4% over the full period with total sales up 0.2% in what outgoing chief executive Dave Lewis said was a “subdued market”.

READ: Tesco’s Asia selloff could lead to a big payday for shareholders

However, for the UK only, LFL sales fell 0.2% due to a 0.4% decline in the 13 weeks of the third quarter, only partly offset by a 0.1% improvement in the six-week festive period.

That compared well to declines over a similar period of 0.7% at second-placed rival Sainsbury’s (LON:SBRY) and 1.7% for Morrisons (LON:MRW).

Irish sales were much stronger at 2% and the Booker wholesale arm delivered 4.1% growth over the full 19 weeks, while central Europe shrank 10.3% and Asia was down 1.6%.

UK, ROI and Booker sales of £16.8bn represent the bulk of the £21bn group total for the 19-week period, with Asia and Europe both contributing £1.9bn.

Tesco Bank’s contribution fell 9.6%, though on an underlying basis that takes account of its decision to exit the mortgage market in September, and sales grew 0.5% to £361mln.

Lewis, who is due to leave in the summer, said a competitive product offering and the best operational performance of the last six years meant the run-up to Christmas saw “the biggest ever day of UK food sales in our history” and Tesco outperformed the market in both volume and value terms.

There was no fresh news on the potential sale of the firm’s Asian business, after beginning a review of the potential options for the Thai and Malaysian businesses.

Head and shoulders ahead of rivals

The shares rose more than 2% to 258p in Thursday morning trading.

"Tesco is just about keeping its head above the water line with positive like-for-like sales, but margins are clearly under pressure in order to achieve this," said market analyst Neil Wilson at Markets.com.

"Core growth was substantially down on Christmas 2018 but against a very challenging back drop you have to give management some slack."

Indeed, the modest UK LFL decline shows, said retail analyst Thomas Brereton at GlobalData, that Tesco is “head and shoulders above its Big Four rivals going into the New Year”.

“While the headline UK sales performance includes a -0.4% impact from reduced general merchandise sales (with Tesco withdrawing from highly competitive non-food markets), much of the forfeited business has been recouped through savvy food offers (such as its Festive 5 vegetable offer) and targeted price reductions (claiming to having lowered a typical festive basket by £2.28 on last year).”

Brereton said that when new CEO Ken Murphy arrives from Walgreens Boots Alliance in the summer he should find, barring any nasty surprises of the kind Lewis arrived to, “a carefully honed Tesco UK business running at the top of its game. While there is certainly work to be done on the international side (including a drastic reshaping in Central Europe and a likely sale of at least parts of its underperforming Asian business) the robust UK & ROI operation will afford him some breathing space to trial ambitious initiatives that its rivals may not be able to afford.”

Quick facts: Tesco PLC

Price: 223.9 GBX

LSE:TSCO
Market: LSE
Market Cap: £21.93 billion
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