Tesco finally lets rip, as sales keep falling

<p>Tesco has this morning bitten the bullet and taken the plunge in a big push to turn around its fortunes in the face of declining […]</p>

Tesco has this morning bitten the bullet and taken the plunge in a big push to turn around its fortunes in the face of declining market share and persistent sales slippage.

Like its rival Sainsbury, which reported Christmas sales yesterday, the UK’s largest supermarket chain in terms of annual sales claims already announced measures introduced during its calamitous 2014, are already turning the tide because whilst it still reported declining sales, the rate of their fall has slowed.

Tesco on Thursday said same-store sales, excluding petrol, fell 2.9% in the 19 weeks to January 3, better than most analysts’ predictions and a significant improvement on a decline of 5.4% in the second quarter.

Christmas-specific sales at the retailer—made up of the most recent six weeks—fell 0.3%.

 

The better-than-expected sales slowdown is being eclipsed somewhat this morning by a raft of measures announced by the supermarket to return revenue growth to the strength seen in years past and stabilise its balance sheet, which notably contains areas which appear to present risks of write downs and total debt that has become potentially crippling compared to its total market value.

  • Savings of around £250m a year expected from restructuring of central overheads, simplification of store management structures and increased working hour flexibility at a one-off cost of £300m pounds.
  • Closure of Cheshunt headquarters planned in 2016, with Welwyn Garden City office to become UK and group headquarters.
  • Capital expenditure budget to be cut to £1bn in 2015/16 from £2.1bn in 2014/15.
  • 43 unprofitable stores to be closed; store building programme to be scaled back.
  • No final dividend for 2014/15.
  • As widely predicted, announced the sale of Tesco Broadband and loss-making video streaming service Blinkbox to TalkTalk, the UK broadband and telephone service provider
  • Dunnhumby, the potentially lucrative consumer data gathering company behind the Clubcard loyalty programme, which may be valued at £1bn-2bn, has also been put on the block.

 

Please check City Index Market News and Analysis often today, for a continuing stream of new articles and updates, plus check @CityIndex and the Twitter feeds of my colleagues and myself for more.

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.