Tesco shares turn volatile after 2 4 decline in UK sales over Christmas

Tesco reported weak trading figures for the vital Christmas period on Thursday with UK like-for-like sales falling 2.4%.

The market expected sales to decline on average by 1.5% so this result is worse than expected and comes against the backdrop of strong sales growth at rival, Sainsbury’s, who reported a 0.2% rise in third quarter like-for-like sales yesterday.

The market range for Tesco sales performances was between a 0.5% fall and 2.5% fall and so their performance lies at the very bottom end of market forecasts.

The UK performance was impacted by a weaker grocery market and a tough comparative.

Tesco now expects to report full year results in line with the current market consensus range, which is £3.15bn to £3.41bn (mean estimate £3.33bn.

Tesco also suffered declines in like for like sales internationally by -2.2%, a figure which was negatively impacted by foreign exchange movements. Before FX impact, sales declined by 0.6% internationally – with trading in Asia falling by 0.6% and Europe declining 0.8%.

The fact Tesco continues to see such a  big negative impact swing from foreign exchange movements raises questions about their ability to hedge their FX exposure, particularly within such a short trading period (six weeks).

It could have been worse

The market will sum up Tesco’s performance over Christmas as ‘it could have been worse.’ In that sense, some shareholders may be somewhat relieved but, make no mistake, there remains significant question marks over the ability of the executive branch to turn the company around.

Their performance over Christmas should have been a statement to the industry that in 2014 Tesco are back with a bang.

Instead, we still have all the same questions as 2013; contracting market share, increased competition to Sainsbury’s, Asda and Lidl, and that the turnaround plan is faltering. Shareholders doubts will continue in the face of this report and the pressure remains on Philip Clarke, particularly as there continues to be a growing divide in the tone and numbers experienced by Tesco and the number two in the market, Sainsbury’s.

Sainsbury’s reported its 36^th consecutive quarter of sales growth yesterday. How Tesco shareholders would crave for just two quarters right now!

Trading Tesco shares

Spread betting and CFD trading Tesco shares of late has been somewhat of a challenge. The failure to break above the 390p level over much of 2013 added pressure on the stock, and traders were happy to short the share price back down to support levels of around 320p.

There remains a growing risk of a return to the 300p level in the near term, unless Tesco starts to convince shareholders that it can buck its current sales decline trend.