26th June 2015
Supermarket giant Tesco has reported an improvement in UK sales in its first quarter trading statement as the company gets to grips with a new strategy.
Like-for-like sales were down 1.3% in Q1 when compared with the same period a year earlier, an improvement on the -1.7% reported in Q4. The numbers were better than consensus expectation, which were for a decline of -2%.
Sales were growth due to space expansion has, however, reduced from 1.6% last year to 1% as store openings are scaled back.
Brewin Dolphin equity analyst Nicla Di Palma said: ‘The statement is very short, but management commentary highlights that the improvements made to service, availability and lower everyday prices are having an impact with customers more likely to shop at Tesco.’
She said that Tesco is continuing with its programme of reducing the number of stock-keeping units – down 20% in the number of lines in 15 categories.
Internationally, like-for-like sales performance improved again, with Asia down 3% compared to -4.7% in Q4. External conditions remain challenging in both Korea and Thailand but Eastern Europe and Turkey showed positive sales performance.
‘Overall group sales were down 0.5% on a constant currency basis, down 1% at actual rates,’ said Di Palma.
‘Management refused to comment on the potential sale of (its marketing company) Dunnhumby and of its South Korean business. As far as property is concerned, management stated that it is looking at alternative uses for the Extra stores it has decided not to build.’
Di Palma said the numbers are ‘encouraging’ but further deflation is expected throughout the end of the year.
‘Furthermore, the announced cost cuts are modest and further investment sin pricing will reduce profitability compared to last year in our view,’ she said.
‘The balance sheet remains problematic, although the sale of assets would help reduce leverage. Rated neutral.’