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Tesco shares slide around 10 percent after its Christmas sales figures disappoint
LONDON (AP) ' Shares in Tesco, Britain's biggest retailer by sales, slumped Thursday after the group warned that it will see minimal profit growth this year after a bigger-than-expected drop in sales over the crucial Christmas trading period.
Tesco PLC, which has 2,700 stores in Britain, said the 2.3 percent decline in like-for-like sales excluding the government's national sales tax and petrol sales in the six weeks to January 7 was below its expectations and "disappointing". The decline was way bigger than the 0.8 percent drop consensus in the markets.
Tesco conceded that there will be a knock-on impact on profits too. Though it told investors that underlying pretax profit and earnings per share for 2011/12 will be broadly in line with market consensus forecasts, it warned that group trading profit growth will "be around the low end of the current consensus range." It also said trading profit growth for the 2012/13 financial year will be "minimal" as it continues its drive to deliver what it calls "an even better shopping trip for customers, particularly in Britain.
The reaction to Tesco's update was savage and its shares were down around 11 percent to 3.43 pounds ($5.24) soon after the open in London.
The company, which triggered a price war with its 500 million pound ($765 million) price-cutting campaign at the end of September, said the number of customers drawn in by its latest promotion had not been enough to offset the lower prices.
"The lowering of prices did drive higher sales, but the pressure on margins rendered the promotion unsuccessful," said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
Despite its problems in Britain, where the economy has flatlined for the best part of a year now, the company was pleased with its performance overseas and said that it will continue "substantially increased investment" in 2012/13.
"In a challenging economic environment, we made good progress internationally but despite record sales, we are disappointed with our seasonal trading performance in the U.K.," the company's chief executive Philip Clarke said.
Tesco's performance stands at odds with much of the evidence that's emerged about the Christmas trading period. On Wednesday, its rival J Sainsbury PLC reported a 2.1 percent increase in like-for-like sales excluding fuel but including sales tax in the 14 weeks to January 7. Analysts estimated that sales would have been flat if the sales tax was taken out of the figures.
And on Tuesday, the British Retail Consortium, retail's main lobby group, found that that like-for-like sales in December in Britain were 2.2 percent higher than the same month in 2010, when heavy snow deterred many holiday shoppers.
"Tesco's competitors had rather more success over the period, the outlook remains threatening and the company has been forced into something of a profits warning for the year," Hargreaves Lansdown's Hunter said.
Earlier this week, research figures revealed Tesco's market share for the 12 weeks ending on Christmas Day dropped from 30.5 percent a year ago to 30.1 percent.