Tesco's same-store sales fall 2.3% during six-week period ended Jan. 7, as company's Big Price Drop campaign fails to attract customers; company reduces profit expectations for fiscal year
January 12, 2012
– Tesco Plc., the largest supermarket chain in the U.K., has reduced its profit expectations for the fiscal year after same-store sales decreased 2.3% year-over-year, excluding value-added tax and fuel, during the six-week period that ended Jan. 7, worse than the median estimate decline of 1% provided by 10 analysts polled by Bloomberg, Bloomberg reported Jan. 12.
Tesco predicted that its profits for the fiscal year will be at the “low end of the current consensus range” and that earnings next year will show only minimal amounts of growth.
During the 2011 holiday season, customers proved to be more enamored with the promotions and discounts offered by Tesco’s competitors. As part of its Big Price Drop campaign, Tesco focused on reducing the price of 3,000 everyday items and offered fewer coupons than its competitors.
Inflation at Tesco was approximately 50% than inflation in the wider U.K. food-retailing market due to the Big Price Drop campaign.
According to Nielsen Media Research Inc., during the 12-week period prior to Dec. 24, Tesco experienced the slowest sales growth out of the four biggest grocers in Britain (Tesco, Sainsbury’s Supermarkets Ltd., Asda Stores Ltd. and Wm Morrisons Supermarkets Plc.).
During this period, Tesco’s market share fell 0.4% to 28.9%, Nielsen reported.
Chief Executive Officer Philip Clarke said that Tesco needed to focus more on promotions and coupons in order to attract customers, and that he expects the business climate in 2012 to be roughly equivalent to the business climate in 2011.
Finance Director Laurie McIlwee reported that Tesco was planning to increase capital spending in Britain during the coming year in order to provide better service, range, prices and quality.
He added that Tesco was planning to increase its investment in online offerings and open several larger stores in Britain.
During the six-week period that ended on Jan. 7, total sales in the U.K. rose by 3.8%, said Nielson.
The primary source of this article is Bloomberg, New York, New York, on Jan. 12, 2012.