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Price Drop fails to spark Tesco’s sales

Retailer records “disappointing” Christmas results despite launch of high profile promotion

Price Drop fails to spark Tesco’s sales

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UK grocery retail market leader Tesco has endured one of its most difficult Christmas trading periods in many years, with like-for-like sales in the company’s domestic market well below expectations.

Despite the high-profile launch of the £500m ‘Big Price Drop’ promotion last year, like-for-like sales in the six weeks to 7 January 2012 only grew by 0.9 per cent excluding VAT and petrol compared with a year before.

The impact of the sluggish performance was felt immediately on the UK stock market, with the company’s share price dropping by 15 per cent, following the release of the Christmas and New Year trading statement.

Although net new space performed well, contributing 3 per cent growth, the retailer said the results were “below expectations and disappointing”, prompting an announcement of a slowing in the rate of new store openings.

Tesco said it was pleased with the performance of its international business during the period, with like-for-like sales excluding petrol up by 1 per cent in mainland Europe and 19.3 per cent at its Fresh & Easy US subsidiary.

The retailer said modest like-for-like growth in Asia of 1.2 per cent had been affected by the aftermath of flooding in Thailand late last year.

In the statement, Tesco chief executive Philip Clarke said: “In a challenging economic environment, we made good progress internationally but despite record sales, we are disappointed with our seasonal trading performance in the UK.

“We will continue the process of change that we started nine months ago to address long-standing business issues, building on the important steps we have already taken in the United States, in Japan and at Tesco Bank, as well as those we have begun to take in the UK.

“The Big Price Drop is an important first element in this process but there is much more we can do to further improve our shopping trip for customers and we are determined to move faster.”

However, Clarke added that Tesco anticipated “minimal group trading profit growth” for the 2012/13 financial year.

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