Tesco suffers from weak U.K. market

LONDON: Tesco Plc started the financial year on a downbeat note as the U.K.’s largest retailer said sales were held back by the political turmoil over the country’s plan to leave the European Union.

The supermarket operator’s shares fell as much as 3.3% in London early Thursday after it said domestic comparable sales rose at only half the rate analysts expected in the first quarter.

The results show that Tesco is not immune to the challenges facing other British retailers, which are getting squeezed by competition from discounters, the rise of online shopping and side effects of Brexit.

“The subdued nature we talk about is the consumer sentiment, which is weakening in the U.K.,” Chief Executive Officer Dave Lewis said on a call with reporters. “Some of that is clearly driven by the political situation.’’

The governing Conservative Party is seeking a new leader after the resignation of Theresa May, which followed her inability to secure Parliamentary approval for her Brexit deal. Now the EU exit has been delayed until Oct. 31, leaving shoppers in limbo over what comes next.

U.K. retail sales plunged 2.7% from a year earlier, the biggest drop since at least 1995 when excluding Easter distortions, industry figures showed. Empty storefronts are multiplying on the country’s shopping streets as billionaire Philip Green’s Arcadia Group Ltd. becomes the latest of a series of retailers to shut dozens of shops.

Tough comparisons
Tesco also suffered from comparisons against a particularly strong period last year, when it benefited from warm weather and a royal wedding. The Booker wholesale division, which has been driving growth, continues to expand but was also held back by a similar effect after securing contract wins last year.

Tesco has used its scale to hold down prices, until now insulating it from the troubles faced by rivals like J Sainsbury Plc, whose bid to combine with Walmart Inc.’s Asda was blocked by regulators. The deal would have given them the purchasing heft to rival the market leader.

Tesco said it was still growing more rapidly than the overall U.K. market as it expands its range of private-label items. But the 0.4% rate in the latest period was a sharp slowdown from the fourth quarter’s 1.7% gain. Through Thursday, Tesco’s shares had climbed 20% so far this year.

One bright spot was U.K. online grocery sales, which rose 7% from a year earlier, Tesco said. The company faces growing competition in e-commerce, as Amazon.com Inc. expands its alliance with Wm Morrison Supermarkets Plc. - Bloomberg

Corporate News , Tesco