iNVEZZ.com, Tuesday, October 21: Tesco’s (LON:TSCO) sales remain in decline, but are showing signs of improvement, industry figures released today have indicated.
The market share of Britain’s largest retailer stood at 28.8 percent in the 12 weeks to October 12, market researcher Kantar Worldpanel reported earlier today, down from 30.1 percent in the same period last year.
Kantar further revealed that Tesco’s sales had in the same period fallen 3.6 percent to £7.01 billion, in spite of overall growth in grocery spending of 0.7 percent across the country. That number is nevertheless an improvement on the 4.5 percent sales fall Kantar reported last month and marks the group’s best performance since June.
“Tesco is yet to see substantial improvement, however it seems it may be turning a corner,” Fraser McKevitt, head of retail and consumer insight at Kantar, said in a statement.
Among Tesco’s ‘big four’ peers, Sainsbury’s (LON:SBRY) also recorded a fall in sales – down 3.1 percent – with market share falling to 16.1 percent from 16.7 percent a year ago. Morrison’s (LON:MRW) sales fell 1.8 percent and its market share to 11 percent from 11.2 percent. Asda was the only one of the four to gain market share. The Walmart-owned chain currently occupies 17.3 percent of the market, after increasing sales by one percent year-on-year
Like-for-like grocery prices for the industry as a whole fell 0.2 percent in the 12 weeks to October 12 – the first period of contraction since Kantar began recording price changes in 2006 – as all the major grocers attempt to fight back against the rise of discounters Aldi and Lidl.
Both the German-owned chains achieved double-digit sales growth over the period, with Aldi sales up 27.3 percent and Lidl up 18.1 percent. Their market shares now stand at 4.8 and 3.5 percent respectively.
Upmarket grocer Waitrose also had a strong start to the autumn, with sales up 6.8 percent and increasing its market share to 5.2 percent.
***Tesco needs to spend billions for turnaround, HSBC Says***
Tesco, the darling of the sector during two decades of uninterrupted earnings growth, is due to announce its first-half results on Thursday. The report has been delayed, after an accounting scandal broke last month ( Tesco share price plummets on profit warning).
Tesco is expected to report first-half underlying profit of £850 million, just half of the £1.6 billion it made in the same period last year. Along with the results, the grocer is set to reveal the findings of its internal probe into the £250 million profit black hole. According to recent media reports, the firms charged with the task of unearthing the details of the shortfall, Deloitte and Freshfields, have found that a group of employees deliberately ‘misled’ auditors so as to inflate the group’s financial results ( Tesco share price: Staff ‘misled auditors’ over £250m black hole).
HSBC broker Dave McCarthy believes that Tesco needs to spend more than £3 billion to reverse its fortunes, including slashing prices and improving food quality. He recommends a rights issue which “could remove balance sheet concerns, allowing management to focus on business improvement, while simultaneously putting pressure on competitors”.
According to McCarthy, Tesco could emerge “as the long-term winner amongst the quoted sector and should be able to take the fight to the discounters” but investors should not expect a quick recovery.
***Tesco share price gains on improvement***
Since the revelation of its £250 million profit shortfall, Tesco’s share price has plummeted around 25 percent. So far today though, the FTSE 100-listed retailer has been trading in positive territory, standing 2.29 percent higher intraday at 183.45p as of 13:08 BST.
Of the 18 analysts projecting 12 month price targets for the retailer for the Financial Times, the median target is 202.50p, with a high estimate of 325.00p and a low of 165.00p.
According to the FT, as of 17 October 2014 the consensus forecast amongst 49 polled investment analysts covering Tesco has it that investors should hold their position in the company.
**As of 12:54 BST, buy Tesco shares at 183.70p.**
**As of 12:54 BST, sell Tesco shares at 183.65p.**