Tesco blames bad weather for flat sales

Jamie Grierson,Pa
Thursday 13 January 2011 08:50

Supermarket giant Tesco today said severe winter weather hindered its Christmas trading performance as it posted modest 0.6% like-for-like sales growth.

The UK's biggest supermarket said the heavy snowfall and freezing temperatures particularly hit its non-food offering as customers were unable to travel to their larger stores.

Sir Terry Leahy, chief executive, said: "Our performance remains solid but was hindered in the run up to the important Christmas trading period in the UK by the disruptive effects of the severe winter weather conditions."

Tesco's update for the six weeks to January 8 follows a stronger set of results from rival Sainsbury's, which delivered 3.6% like-for-like sales growth over a longer trading period for the 14 weeks to January 8.

Fourth biggest supermarket chain Morrisons turned in a stronger performance in the six weeks to January 2, with like-for-like sales excluding fuel and VAT up 1%.

Tesco maintained its market share in the 12 weeks ending December 26 at 30.5%, according to researcher Kantar Worldpanel.

But according to reports, figures which are not publicly disclosed by Kantar for the four weeks to December 26 revealed Sainsbury's overtook Asda to become the second-biggest supermarket in the UK.

Laurie McIlwee, Tesco's group finance director, said Sainsbury's results were not comparable to Tesco's.

Food sales grew 1.7% on a like-for-like basis over the festive period, whereas non-food sales, which include electrical goods, entertainment and clothing, declined 1.5%.

Mr McIlwee said the group estimates the snow reduced sales by 1% but did not give a cash figure.

He added: "Most of the impact was in non-food sales - which were negative - and that's because customers could not get to the big out of town stores."

Within food, he said customers were "trading up" and buying the company's Finest range, with ham on the bone sales up 50%, Finest party foods up 90% and Finest wines up 100%.

Tesco's total group sales increased by 7.6% but this was driven by growth overseas.

In Asia, sales grew by 24.2%, with strong performances in Thailand and China, in Europe sales grew 5.6%, while in the US, the Fresh & Easy chain saw sales grow by 36.9%.

Tesco Direct, the company's website, saw sales increase by 18% with a strong performance in toys, gaming and small domestic appliances.

Tesco's shares fell more than 2% following today's update.

Neil Saunders, consulting director at retail analyst Verdict, said the weather impact was only part of the picture when looking at Tesco's update.

He said: "There are other factors at work. Foremost among them is the degree to which the expansion of rivals, especially in non-food, is eroding Tesco's growth potential. As the largest player, Tesco has most to lose from the physical expansion of players like Sainsbury's.

"Tesco also suffered something of a pincer movement this Christmas. Some of its customers traded up to more premium grocers like Waitrose, Sainsbury's and M&S while some traded down to the likes of Asda and Morrisons. This erosion almost certainly dented growth and it indicates that Tesco needs to develop a clearer position to retain high spending customers."

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "There are, indeed, positives within the statement, such as the growth in online sales and, especially, the performance of international business where the progressive trajectory has been maintained.

"This geographical diversification is of benefit to the company as a whole when the core domestic market is misfiring and to some extent gives Tesco an edge over many of its rivals."

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