Tesco reports sales decline of 1.5% in UK sales

<p>Tesco today reported group sales growth of 0.6% for their fiscal third quarter but like-for-like UK sales fell by 1.5% as the firm told shareholders […]</p>

Tesco today reported group sales growth of 0.6% for their fiscal third quarter but like-for-like UK sales fell by 1.5% as the firm told shareholders that international conditions remain challenging.

Like-for-like sales declined in Asia by 5.1%, with European sales also falling by 4%.

Despite the difficulties, Tesco remain confident that they’re performing in line with market expectations for the full year and that their strategic priorities are the right ones.

Make no mistake, however, this earnings report will do nothing to prevent the degree of caution and concern many shareholders have for the performance of the UK’s largest retail firm. Tesco has fallen sharply below the performance of rivals; such as Asda and Sainsbury’s, which continues to beg the question whether they themselves are outperforming the market or if Tesco is underperforming it.

In truth, based on the performance of Tesco this year, when earnings reports at the start of the year showed that its hugely aggressive turnaround plans had started to gain traction before falling away mid-year, the answer seems to be a bit of both. This is why shareholders continue to be concerned.

It’s easy to compare Tesco’s results to that of Sainsbury’s, who continue to report consecutive quarterly like-for-like sales growth – without fail, every quarter: much to the delight of shareholders who are enjoying the consistency of reporting.

Therein lies one crucial issue with Tesco: the volatility of its reporting, which means shareholders can’t enter into any reporting period with a sense of calm or ease. Consistency brings peace of mind and dedication amongst shareholders.

There had been whispers in the market that Tesco was likely to report a weak statement for their third quarter and it would appear this is what we’ve got. In that sense, it may not throw up too many surprises but there will be disappointment among shareholders.

The big question now is what will the vital Christmas trading period bring the troubled retailer?

Traders are taught to trade in the direction of the prevailing trend and so, in this sense, the trend for Tesco going into this vital period is extremely challenging. This could in fact prove to be the most important Christmas period for Tesco in recent times. If they fail to attract shoppers for its all important food items, and convince shoppers to diversify their spend into non-food items, then shareholders will lose faith.

Tesco is now entering into a crucial stage in its history. I, for one, hope it does deliver.

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.