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Pressure mounts at Tesco as British sales see serious quarterly drop
Last Updated: 2014-06-06 02:43 | Global Times
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Tesco, Britain's biggest retailer, posted the worst quarterly drop in underlying sales in its key home market since Chief Executive Phil Clarke took the helm in 2011, raising further questions over his trading strategy.

Clarke is two years into a multi-billion pounds turnaround plan for its British business which contributes two-thirds of sales and profit for the group, the world's third-largest retailer after Wal-Mart and Carrefour.

Tesco said on Wednesday sales at UK stores open over a year, excluding fuel and VAT sales tax, fell 3.8 percent in its fiscal first quarter, hurt by price cuts and a weak food market, and that it expected the difficult times to continue.

That was however better than some analysts feared after the release of weak market share data on Tuesday, and the company said it was pleased with the early results from its turnaround program.

Analysts had forecast a decline of 3.5 to 4.1 percent, after a fall of 3 percent in the fourth quarter of Tesco's 2013-14 year.

Analysts also estimate that the result is the weakest performance for over a decade for the British market leader, although Tesco does not give a breakdown of quarterly results going back that far.

Tesco is battling a British grocery market growing at its lowest rate for 11 years as stagnant wages keep consumer spending in check.

In common with Britain's three other big grocers, Wal-Mart's Asda, Sainsbury's and Morrisons, it is also being squeezed between hard discounters Aldi and Lidl and Waitrose and Marks & Spencer at the premium end.

Asda and Morrisons have pledged to cut prices, while Sainsbury's has vowed to remain competitive, raising concerns about a possible price war hitting earnings across the industry.

"I'm not making any promises about sales improvement in the next few quarters," Clarke told reporters.

The result at Tesco is two straight years of profit decline and forecasts for a third in the 2014-15 year after Clarke guided in April that same store sales would be negative for some time.

Vowing to win back shoppers with millions of pounds of price cuts and by accelerating the pace of change at larger stores, it has spent billions on store refits, staff, product ranges and online services, but it has so far failed to deliver an improvement in underlying sales.

The turnaround program has also resulted in the group dropping a profit margin target, which was the highest in the industry, as price cuts hit sales going through the till if they are not offset by volume gains.

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