Tesco’s Clarke Declines to Promise Improvement in Sales

Tesco Plc Chief Executive Officer Philip Clarke said he’s not ready to pledge an improvement in sales growth after the U.K.’s largest grocer reported the steepest decline in domestic revenue since he first stocked shelves as a schoolboy four decades ago.

“I’m not making any promises about sales improvements in the next few quarters,” Clarke said on a conference call today.

The CEO, who joined as a graduate trainee in 1981, has presided over three straight periods of worsening sales declines at home. Sales at U.K. stores open at least a year fell 3.8 percent, excluding gasoline and value-added tax, through May 24, Cheshunt, England-based Tesco said today. That compared with the median estimate of 14 analysts for a 4 percent decline.

Since succeeding Terry Leahy in 2011, Clarke has been unable to halt a slump in Tesco’s market share as customers desert the chain for lower prices at Aldi and Lidl, and luxury food from Waitrose. Price cuts this year haven’t gone as far as some competitors and have so far failed to lure customers back.

“Even though it’s a bit better than expected, the U.K. still looks pretty horrible, while overseas is only improving marginally,” said Richard Marwood, who helps oversee $700 billion in assets at Axa Investment Managers, including Tesco shares. “I’m not sure there is much in today’s report to advance the debate on how it will improve the business.”

Declining Share

The shares declined 1.2 percent to 294 pence at 1:33 p.m. in London, erasing an initial 2.5 percent gain. The stock has declined 12 percent this year and in April touched its lowest level since 2004.

Tesco’s market share has tumbled 1.5 percentage points to 29 percent in the past year, the biggest annual drop in at least two decades, researcher Kantar Worldpanel said yesterday.

“I haven’t seen LFL like this before,” Clarke said on today’s call, referring to same-store sales. “But then I have not seen a period of transformation like that in the industry before.” The executive said he was determined to see through his plans.

The grocer not only has to contend with discounters encroaching on its patch, with Wal-Mart Stores Inc.’s Asda and Wm Morrison Supermarkets Plc also making life difficult. Both have announced 1 billion-pound ($1.7 billion) multi-year price-cutting programs, while Tesco has said it will invest at least 200 million pounds in lower prices this year.

Industry Slowdown

Price-cutting and a growing customer preference to shop at discounters are weighing on industry growth. The market expanded by 1.7 percent in the 12 weeks ended May 25, the slowest pace in at least 11 years, Kantar Worldpanel said yesterday.

Prices at Tesco “remain too high,” Darren Shirley, an analyst at Shore Capital in Liverpool, said in a note today. “Tesco’s customer insight must be drumming up some crazy stuff if it is leading management to adopt its present strategy, which to our minds is clearly not working.”

More discounting will follow, Clarke said. “Price is an important part of the story, but not the only part,” he said.

Those that interpret his comments as meaning Tesco is prepared to escalate a price war may be disappointed, according to Bruno Monteyne, a former Tesco executive now working as an analyst at Sanford C. Bernstein in London.

“For now, Clarke is done with the big price cuts,” Monteyne said by phone. “They have cut the prices on core food items and that was the right thing to do, but you don’t win the war by simply cutting prices.”

Giraffe Restaurants

Tesco already spent more than 1 billion pounds revamping supermarkets, training staff and putting upscale Harris & Hoole coffee stores and the Giraffe chain of family restaurants into its larger hypermarkets. The acceleration of the company’s plans is hurting performance in the short term, Clarke said today.

International same-store sales declined 2.2 percent in the quarter, Tesco said today, less than the previous period’s 3.2 percent slide. Asia witnessed an improvement, Tesco said, while sales rose in the Czech Republic, Hungary, Poland and Turkey.

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