Tesco Continues Recovery With Solid Q3 And Christmas Trading Results

Tesco has capped a year of recovery with a solid performance during its third quarter and over the key festive period.

During the 13 weeks ended 26 November, the group’s overall like-for-like sales rose 1.5% with its core UK business seeing growth of 1.8%. Tesco said the period marked its eighth consecutive quarter of like-for-like volume growth with it also making its first quarterly market share gain since 2011.

Like-for-likes in Ireland edged up 0.5%, whilst sales in its international division grew 0.6%, with 0.7% growth in Europe and a 0.4% rise in Asia.

Over the Christmas trading period covering the six weeks ended 7 January, Tesco’s UK like-for-like sales rose a solid 0.7%. Food like-for-like sales were up 1.3%, boosted by robust performance in fresh food and improved product availability. Tesco added that it saw strong demand for its Christmas grocery ranges with a 24% increase in party food sales, whilst ‘Free From’ sales rose 18%.

The group said that its decision not to repeat its Clubcard ‘Boost’ promotion during the period impacted total UK like-for-likes by 0.8% due to lower general merchandise sales. However, it still saw strong performance in clothing and toys, with sales up 4.3% and 8.5% respectively.

Amid signs that inflationary pressures are starting to build in the grocery sector, Tesco said it was working in collaboration with suppliers to minimise the impact on its customers, stressing that the price of a typical basket still remains nearly 7% cheaper than two years ago.

Meanwhile, sales in Ireland over the festive period slipped 0.7% as Tesco invested heavily in lowering prices to drive volume growth. International like-for-like sales fell 1.2% with the group blaming comparisons with a particularly strong seasonal performance last year, increased promotional activity market in Europe, and weaker consumer spending in Thailand.

Tesco’s Chief Executive Dave Lewis said: “We are very encouraged by the sustained strong progress that we are making across the Group”, adding: “We are well-placed against the plans we shared in October to become more competitive for customers, simpler for colleagues, and an even better partner for our suppliers, whilst creating long-term value for our shareholders.”

Commenting on the results, Richard Lim, Chief Executive at Retail Economics said: “Its laser-like focus on the core UK food business through deeper price investment and further asset disposals has halted the loss of market share against the smaller but faster growing discounters.”

Meanwhile, David Alexander, Senior Analyst at Verdict Retail, commented: “Dave Lewis’ pragmatic approach to steering the Tesco ship out of choppy waters looks more assured with each passing update. The numbers from third quarter and Christmas trading are hardly spectacular, but they represent a further positive step in the steady progress the ex-Unilever boss has made since taking charge.”

However, Tesco’s share price fell more than 2% in early trading today with analysts pointing to the disappointing international results and weaker Christmas trading compared to the likes of Morrisons.

NAM Implications:
  • Where at: In a relatively flat demand environment, it could be said that Tesco is growing at the expense of Asda and Sainsbury’s in the mults channel and slowing the growth of the discounters, at best
  • Where headed: For this to continue, Tesco will have to sustain its relative competitive appeal…
  • Effect on you: This has to mean continued pressure on resisting supplier cost price increases…
  • Action: Essential that branded NAMs reassess the degree of match between their consumer profiles and the traffic-profiles of individual mults, as a basis for differentiated trade strategies that optimise supplier labelling of customers as invest, maintain or divest, and negotiate their cost-price increases accordingly
Tesco Ireland
  • Continued pressure resulting from cross-border price differentials means suppliers and retailers need to take more of a holistic approach to their UK/Ireland pricing structures
  • A fundamental issue that becomes increasingly important as the Brexit issue hardens…