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Tesco announces better-than-expected sales over Christmas period Tesco to axe 43 stores - but Christmas sales exceed forecasts
(about 3 hours later)
Troubled supermarket Tesco has reported better than expected Christmas sales and unveiled a plan to get back on track after being hit by an accounting scandal and issuing four profit warnings last year. Tesco has announced that it is to close 43 stores – despite reporting better-than-expected Christmas sales.
Like-for-like sales at Christmas were down just 0.5 per cent compared to a 4.4 per cent fall in the previous three months, Tesco said. New chief executive Dave Lewis revealed the plans today as part of his shake-up of the supermarket chain. Tesco is not yet disclosing the locations of the planned closures, which will be spread across the country, but Mr Lewis revealed that a "significant proportion" would be its Express convenience shops.
The plan put forward by new chief executive Dave Lewis will see Tesco sell assets and cut hundreds of millions of pounds of costs to fund lower prices in an attempt to fend off increasingly intense competition from discounters like Lidl and Aldi. The move is set to leave staff fearing for their jobs, but Mr Lewis would not give any guidance on the scale of the jobs to be lost or whether they were likely to be in the thousands. Head office jobs will also see cuts as overheads are slashed by 30 per cent.
Britain's largest supermarket will also reduce its capital expenditure for next year to £1 billion, from up to £2.1 billion this year and cut costs by £250 million a year. Employees will start to learn over coming months where the axe will fall as Tesco begins consultations with those affected with full details set to be known by April.
It will also explore the sale of its Dunnhumby data business, not pay a final dividend and will consult on a plan to close its defined benefit pension scheme to all colleagues. Tesco will also abandon its headquarters in Cheshunt in 2016 after more than 40 years, and 49 stores in the pipeline are being cancelled.
Tesco also announced the appointment of Halfords Chief Executive Matt Davies as the new boss of its UK and Ireland business. Staff will be hit further by the closure of the group's final salary pension scheme.
Davies, who will start in June, is widely credited with turning around the bikes to car parts retailer. Mr Lewis said: "We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation.
Additional reporting by Reuters "Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results."
Like-for-like sales were down just 0.5 per cent over Christmas, compared to a 4.4 per cent fall in the previous three months.
It was a marked improvement on earlier declines and much better than City forecasts, suggesting that Tesco was back on track after being hit by an accounting scandal and issuing four profit warnings last year.
The chief executive, who took over in September confronted by the worst sales performance for Tesco in four decades, said the decisions he was taking today were "never easy".
He said: "It is a great business that's come under intense financial pressure and we are trying to reinvigorate the model and address financial challenges."
Mr Lewis was upbeat on Tesco's trading performance over the festive period as sales declines eased. He paid tribute to the "exceptional job" done by staff.
Meanwhile, the group has named turnaround specialist Matt Davies, currently boss of Halfords, to lead its UK and Ireland business from June.
It also plans to slash capital spending to £1 billion for the next financial year, the same as it spent in the first six months of 2014/15 and less than the £2.7 billion invested in the 2013/14 financial year.
And Tesco fired the latest salvo in the new year supermarket price war by cutting the cost of hundreds of branded products by around a quarter. It follows price-cutting announcements by rivals Asda and Sainsbury's in the last few days.
HSBC analyst Dave McCarthy said: "This is a positive statement in many respects.
"It shows sales momentum is turning, that Dave Lewis will make bold decisions on all areas of the business, that the balance sheet is being strengthened, that management has been strengthened and that there are no sacred cows with the closure of the Cheshunt head office. It is hard to imagine much better news today."
But the Usdaw union said it was a "worrying and difficult time" for its members and that it had arranged meetings to begin discussions on Tesco's plans.
The trading update showed like-for-like sales fell 2.9 per cent in the 19 weeks to 3 January, including a 4.2 per cent fall in the third quarter to 22 November, narrowing to a slide of 0.3 per cent for the subsequent six weeks. It compared to a 5.4 per cent fall in the second quarter.
In the six-week period, Tesco also saw improved online sales, with grocery home shopping up 12.9 per cent and clothing up 52.4 per cent. An increasing proportion of online grocery shopping was done through click-and-collect.
Black Friday promotions at the end of November saw Tesco Direct - the home of its range of electrical appliances - record its highest week of sales on record
Tesco said like-for-like volume growth in fresh food was positive over Christmas for the first time in five years. Meanwhile convenience store sales grew 4.9 per cent.
The group said its central restructuring will result in savings of £250 million.
Tesco employs more than half a million people including 310,000 in the UK where it has more than 3,300 stores.
Additional reporting Press Association