Tesco Reports Slump in Profits over Last Six Weeks

According to 'Marketwatch,' Tesco PLC warned today (Thursday, 12 January 2012) of minimal profit growth in fiscal 2013 as sales in the U.K. continue to slump and the company is forced to invest hundreds of millions of pounds in trying to boost revenue.

The news sent shares in the retailer down more than 10% in opening trade and at 0807 GMT, Tesco shares were 40 pence lower, down 10.3% at 346 pence.

Tesco reported a 2.3% decline in U.K. same-store sales in the six weeks to Jan. 7, excluding VAT and fuel, a deterioration on third quarter sales which fell 0.9% from a year earlier, despite a major price-cutting campaign.

But while its U.K. difficulties hamper sales at home, its international operations continue to grow, and overall sales rose 5.2%, buoyed by rising petrol prices and continued strong growth in Asia.

Chief Executive Philip Clarke said he was disappointed with the U.K. sales, which were below the company's expectations, particularly because last year's sales were already crimped by heavy snow and transport disruptions.

He said the company planned to invest hundreds of millions of pounds in improving the shopping experience, and will cut capital expenditure on opening large stores to focus on smaller formats and improving already-open stores.

The dire Christmas trading in the U.K. means Tesco's trading profit for fiscal 2012 will be at the low end of consensus although underlying profit before tax and earnings per share will be broadly in line with market expectations, the company said.

However, with substantial investment in the U.K. in fiscal 2013, the company now expects trading profit to show only minimal growth. Chief Finance Officer Laurie McIlwee said the market had been expecting trading profit growth of around 10% in fiscal 2013.

Tesco has already invested GBP500 million in its Big Price Drop campaign, a high-profile cost cutting campaign that has cost the company any growth in U.K. trading profit for the second half of 2012.

Meanwhile ....

J. Sainsbury PLC launched a branded price matching campaign and a new "Live Well For Less" slogan which helped the U.K.'s third largest supermarket chain to report Wednesday a 1.2% rise in third-quarter same-store sales, excluding VAT and fuel.

Meanwhile, Wm Morrison Supermarkets PLC replied with several cost-saving Christmas options and Monday posted a 0.7% sales rise over the festive season.

Despite better performances, after the Tesco update Thursday Sainsbury shares fell 5.7% to 285 pence and Morrisons shares were down 4.6% at 290 pence.

Tesco CEO Clarke insisted the Big Price Drop campaign was necessary, and blamed the sales decline over Christmas on Tesco's decision not to bombard its customers with money-off coupons, a strategy which some rivals chose.

Alongside the price focus, Clarke said the company will invest hundreds of millions of pounds in improving in-store service and product ranges - in a tacit admission that the company has fallen behind its rivals in the grocery race.

He said the decision to slow down the opening of large superstores, which dedicate massive floor-space to underperforming non-food products, is predicated on a shift to investment in online sales, which can showcase Tesco's entire range of food and non-food without the cost of large stores.

He said the number of store openings planned wouldn't change, implying Tesco remains focused on opening smaller format stores which play to consumers demand for smaller, more frequent and local shopping trips.

Tesco's efforts to lift sales in the U.K. have also been hampered by the company's large exposure to non-food, which has been hit by the decline in spending seen across the retail market for the last year.

Still, Clarke said that while non-food same-store sales continue to decline, the rate had slowed and the trend was improving.

Tesco's U.K. operations accounted for around two thirds of the group's sales and profits last year and, while it has struggled at home, its international business continues to grow.

And Clarke said the cut backs in capital expenditure planned for fiscal 2013 wouldn't affect its international expansion plans.

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COMMENT:

Naturally, we didn't expect any nod of acknowledgement to the fact that, given Tesco's well publicised decision to sponsor homosexual causes (Pride London 2011 and World Pride 2012), many Christians have decided not to do their principal weekly shop in their stores for the foreseeable future.

It is quite remarkable that, despite Tescos best efforts to promote sales and in spite of the extremely favourable weather our country has enjoyed over the course of the past six weeks, the profits of this 'powerful company' have sustained a significant 2.3% decline and 10% has been marked off their shares.

Not that this is a time for us to boast: it is a reminder to us, as well as to Tescos and the vocal minority of sodomite activists within its ranks who crave its financial muscle to be flexed in their interests, that, "The LORD is in His holy temple, the LORD'S throne is in heaven: His eyes behold, His eyelids try, the children of men" (Psalm 11:4).

Let sinners - and saints - learn to tremble before Him.