Tesco interim results show slow growth despite cuts

Tesco chief executive Philip Clarke said he was “confident” that recent changes to the company, including the price drops in the UK, would leave it “well-positioned to make further progress during the second half.”

However, analysts have raised doubts over the effectiveness of Tesco’s Price Drop strategy. Evolution Securities’ Dave McCarthy said: “Our overriding impression is that the UK business remains disappointing and we are unconvinced that enough has been done to put it back on track.”

He added that he was concerned that Tesco’s Price Drop strategy, which represents an investment of £500m by the retailer, did not go far enough for consumers. “We had hoped that the Big Price Drop would be a significant event, but it looks increasingly disappointing. We think Tesco should have invested a lot more and taken more pain to reposition itself.”

Sainsbury’s also released its second-quarter trading statement, with total sales for the second quarter up 7.8% and total sales for the first half of 2011/2012 up 7.6%. Chief executive Justin King said he believed that Sainsbury’s had delivered a “good sales performance in a tough consumer environment”. He added that Sainsbury’s premium ‘Taste the Difference’ range and economy ‘basics’ range both saw “strong growth” and said the retailer was working to reduce prices for shoppers through the launch of its ‘Live Well for Less’ lines and re-launch of its own-brand ‘by Sainsbury’s’ range.

But security analyst McCarthy believes the retailer remains vulnerable. “Sainsbury’s pays dividends out of debt, has a huge capex programme and has the highest leverage amongst the majors,” he said. “Consequently it has the weakest cashflow and is the most vulnerable to price competition leading to a fall in industry margins.”

Recent figures released by Kantar Worldpanel showed that the ‘big four’ supermarkets – Morrisons, Sainsbury’s, Tesco and Asda – are suffering in the current economic climate, with strongest growth occurring among hard retailers such as Aldi and Lidl and premium retailers such as Waitrose.

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