More than £4bn was wiped off the stock market value of Tesco on Thursday after Britain's biggest retailer delivered its worst Christmas sales performance in decades and warned it would see "minimal" profits growth this year.
On a black day for the high street, major chains including Argos, Mothercare, Halfords and Thorntons reported sales declines over the crucial holiday season as the squeeze on living standards forced Britons to rein in their spending.
Dire sales at Tesco's UK chain spooked investors, sending the share price down 15% and dragging Morrisons, Sainsbury's and Marks & Spencer with it.
Last year Tesco launched a high-profile £500m "Big Price Drop" price cuts campaign but the marketing push, which was part-funded by cutting Clubcard points, has failed to capture shoppers' imaginations.
Tesco chief executive Philip Clarke, who succeeded Sir Terry Leahy, said he was "disappointed" with the group's performance and now plans to cut back the rate of store openings in the UK.
The retailer already has market share of more than 30%, almost twice the size of its nearest competitor Asda. The "challenging consumer environment" meant profits would now be at the bottom of market expectations, said Clarke.
Panmure Gordon analyst Philip Dorgan cut his forecasts for this year and next by 15%, saying the warning "raises concerns for long-term growth as, ultimately, if the UK's profits keep falling, then [Tesco] will not be able to invest as much overseas".
At Argos, boss Terry Duddy said the group planned to close some of its stores after like-for-like sales tumbled nearly 9%.
The weeks leading up to Christmas are usually the best of the year but trading was "volatile and demanding" as Britons cut back, sending sales of flatscreen TVs and video games consoles into freefall and forcing the chain to slash its prices.
Argos is part of the Home Retail Group, which also owns Homebase, and Duddy warned that straitened times meant it needed to hoard cash and would be making a "significant" cut to its dividend payments to shareholders.
Tesco was expected to have a tougher time than its smaller rivals at Christmas due to its large clothing and homeware business, which is the area where shoppers have been cutting back most.
But Clarke was critical of Tesco's own performance which he said was "below our expectations and disappointing".
Underlying sales were down 2.3% in the six weeks to 7 January, which was far worse that many analysts had expected and below the figures already reported by Sainsbury's and Morrisons.
Tesco launched the Big Price Drop in September to reverse a trend of declining market share, although it remains twice the size of its nearest competitor Wal-Mart-owned Asda with more than 30% of the UK grocery market.
At that time the retailer warned that sales would suffer in the short term as a pickup in volume was not expected to offset an immediate drop in cash taken at the till; some analysts argue, however, that it is not working.
"We delivered a very good Christmas shopping experience for our customers but in a highly promotional market, the volume response to our increased investment into lowering prices did not offset the deflation it has driven," said Clarke.
Tesco said clothing and electricals rose over Christmas, with the latter buoyed by e-readers and tablet computers, but the retailer said like-for-like sales were still lower than last year when it blamed its poor performance on the blast of Arctic weather which caused havoc for retailers.
There has been a polarisation of performance in the retail sector this year.
The chains that have done well – a list that includes John Lewis and upmarket food retailers Sainsbury's, Waitrose and M&S – are those which offered Britons the chance to treat themselves at Christmas after a difficult year for many families.
"The winners this Christmas have been those brands with the ability to fulfil the UK's demand to treat itself on special occasions," said Oriel Securities analyst Jonathan Pritchard.
On a black day for the high street, major chains including Argos, Mothercare, Halfords and Thorntons reported sales declines over the crucial holiday season as the squeeze on living standards forced Britons to rein in their spending.
Dire sales at Tesco's UK chain spooked investors, sending the share price down 15% and dragging Morrisons, Sainsbury's and Marks & Spencer with it.
Last year Tesco launched a high-profile £500m "Big Price Drop" price cuts campaign but the marketing push, which was part-funded by cutting Clubcard points, has failed to capture shoppers' imaginations.
Tesco chief executive Philip Clarke, who succeeded Sir Terry Leahy, said he was "disappointed" with the group's performance and now plans to cut back the rate of store openings in the UK.
The retailer already has market share of more than 30%, almost twice the size of its nearest competitor Asda. The "challenging consumer environment" meant profits would now be at the bottom of market expectations, said Clarke.
Panmure Gordon analyst Philip Dorgan cut his forecasts for this year and next by 15%, saying the warning "raises concerns for long-term growth as, ultimately, if the UK's profits keep falling, then [Tesco] will not be able to invest as much overseas".
At Argos, boss Terry Duddy said the group planned to close some of its stores after like-for-like sales tumbled nearly 9%.
The weeks leading up to Christmas are usually the best of the year but trading was "volatile and demanding" as Britons cut back, sending sales of flatscreen TVs and video games consoles into freefall and forcing the chain to slash its prices.
Argos is part of the Home Retail Group, which also owns Homebase, and Duddy warned that straitened times meant it needed to hoard cash and would be making a "significant" cut to its dividend payments to shareholders.
Tesco was expected to have a tougher time than its smaller rivals at Christmas due to its large clothing and homeware business, which is the area where shoppers have been cutting back most.
But Clarke was critical of Tesco's own performance which he said was "below our expectations and disappointing".
Underlying sales were down 2.3% in the six weeks to 7 January, which was far worse that many analysts had expected and below the figures already reported by Sainsbury's and Morrisons.
Tesco launched the Big Price Drop in September to reverse a trend of declining market share, although it remains twice the size of its nearest competitor Wal-Mart-owned Asda with more than 30% of the UK grocery market.
At that time the retailer warned that sales would suffer in the short term as a pickup in volume was not expected to offset an immediate drop in cash taken at the till; some analysts argue, however, that it is not working.
"We delivered a very good Christmas shopping experience for our customers but in a highly promotional market, the volume response to our increased investment into lowering prices did not offset the deflation it has driven," said Clarke.
Tesco said clothing and electricals rose over Christmas, with the latter buoyed by e-readers and tablet computers, but the retailer said like-for-like sales were still lower than last year when it blamed its poor performance on the blast of Arctic weather which caused havoc for retailers.
There has been a polarisation of performance in the retail sector this year.
The chains that have done well – a list that includes John Lewis and upmarket food retailers Sainsbury's, Waitrose and M&S – are those which offered Britons the chance to treat themselves at Christmas after a difficult year for many families.
"The winners this Christmas have been those brands with the ability to fulfil the UK's demand to treat itself on special occasions," said Oriel Securities analyst Jonathan Pritchard.
No comments:
Post a Comment