Tesco's problems mount as UK sales resume decline

Wed Dec 4, 2013 8:03am EST
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By James Davey

LONDON (Reuters) - Tesco's (TSCO.L: Quote) sales fell in Britain and abroad in the third quarter, casting fresh doubt over Chief Executive Philip Clarke's 1 billion pound ($1.6 billion) effort to reinvigorate the world's third-biggest retailer.

The company, which trails France's Carrefour (CARR.PA: Quote) and U.S. giant Wal-Mart (WMT.N: Quote) in annual sales, blamed a weaker UK market for the fall. It said it was focusing on the long term and would not be drawn into a price war.

Tesco aims to dominate a new multi-channel era - selling a range of goods from bread to clothing and banking products from its supermarkets and online, rather than slashing food prices to win market share from rivals such as Wal-Mart's Asda.

The company, which makes about two thirds of its revenue in Britain, is 20 months into the UK turnaround plan and is pouring investment into store upgrades, extra staff, new product ranges and price initiatives.

"It looked like Philip Clarke's billion-pound turnaround plan was beginning to work but today's 1.5 percent fall in UK like-for-like sales will call this into question," said John Ibbotson, director of retail consultants, Retail Vision. "This, together with declining sales in key overseas markets, will put Clarke and his senior management team under threat."

Tesco's recent share performance suggests some investors have given up waiting. After trading mostly in line with Britain's FTSE 100 index .FTSE since the start of the year, the stock decoupled from the benchmark in early September and is now largely unchanged on the year, with the FTSE up 11 percent.

"My feeling is that probably they're doing the right thing," said a Tesco institutional shareholder who declined to be named. He said management deserved more time to deliver results. "It's such a large company and a fairly big problem so it's difficult for the management to have a quick fix."

Tesco shares were down 1.1 percent at 337.7 pence at 7:26 a.m. ET.   Continued...

A lorry with job advertisements on its side leaves a Tesco distribution centre in Dagenham, east London August 12, 2013. REUTERS/Andrew Winning