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Tesco targets better UK performance after flat sales

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The UK’s largest grocer Tesco could be performing better and is taking action in a number of key areas to improve its trading in the UK, according to a trading statement published by the retailer today.

In its preliminary results for the 2010/11 financial year, the company revealed that like-for-like (LFL) sales for the full 12-month period were flat, having dropped 0.7 per cent in the fourth quarter.

UK trading profit grew by 3.8 per cent year-on-year, or by 6.4 per cent before the effects of the supermarket’s sale and leaseback programme are taken into account.

Total sales, including petrol and VAT, increased by 5.5 per cent in the year, with a strong contribution from net new space, much of which was added in H2.

It appears, though, that various economic pressures currently facing consumers in the UK are having a negative impact on Tesco’s sales across all sectors.

Senior Analyst at Verdict Research Matt Piner said that Tesco showed weak growth in food “and an even more disappointing performance in non-food” during 2010/11.

“Previously, despite the economic downturn and the unfavourable conditions for consumers Tesco has continued to achieve strong gains in areas such as electricals, homewares and clothing,” he continued.

“Now there are real signs that this is slowing. This is partly because Tesco is unable to open stores in new areas at the rate it used to and because it is becoming more mature in categories such as electricals.

“It is also suffering from its customers feeling increasingly squeezed. Consumers may still turn to the retailer for value, but they are currently making fewer impulse non-food purchases than they used to.”

Piner added that, as the biggest player in the grocery market, Tesco is more exposed to consumers shopping around and the growth of its closest rivals Asda, Sainsbury’s and Morrisons, with the latter two having consistently increased market share in recent months.

Food prices have been rising too, but the major supermarkets have had to use promotions and offers to keep budget-squeezed consumers entering their stores, resulting in smaller margins.

Of course Tesco is a global player and it today reported more encouraging news from the other markets in which it operates.

Tesco performed well internationally, especially in its Asian and European territories which contributed nearly 70 per cent of the group’s profit growth.

Overall group sales, including all global markets, were up 8.1 per cent to £67.6 billion and underlying profit before tax rose 12.3 per cent to £3.8 billion.

Today’s Tesco statement said: “We didn’t achieve our planned growth in the year in the UK and this was only partly attributable to the deterioration in the consumer environment during the second half.

“We can do better and we are taking action in key areas - for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers.”

New Group CEO Philip Clarke, who succeeded long serving Tesco boss Sir Terry Leahy in March, said the company is well-positioned for global growth and suggested the new UK management team “is bringing more focus and energy” to the largest part of its business.

Published on Tuesday 19 April by Editorial Assistant

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