Tesco reveals sales fall and big cost-cutting plan

By Michael Stones

- Last updated on GMT

Tesco boss Dave Lewis said the retailer was taking 'the first important steps in the right direction'
Tesco boss Dave Lewis said the retailer was taking 'the first important steps in the right direction'

Related tags Retailing Tesco

Tesco has unveiled another fall in like-for-like sales (LFL) and a major cost-cutting programme, including the closure of 43 stores, in financial results covering the 19 weeks to January 3.

LFL sales were 0.3% down over the period, albeit an improvement on the 2.4% fall reported in the same period of 2012/2013.

The retailer also posted a 2.9% fall in sales for the three months to the beginning of January. Sales in the preceding three months had fallen by 5.4%. Over the six-week Christmas period, LFL sales fell by 0.3%.

Tesco boss Dave Lewis said the results represented a broad-based improvement in the UK business. He attributed the improved performance of LFL sales to investments made in “service, availability and selectively in price”, ​which were resulting in a better shopping experience.

‘First important steps’

Lewis added that the Tesco team had begun the challenging task of reinvigorating the business. “There is more to do but we have taken the first important steps in the right direction,”​ said Lewis.

All UK formats and categories showed improved LFL performance. In the six week Christmas period, grocery home shopping rose by 12.9%, general merchandise online by 22.2% and clothing online by 52.4%.

Along with the results, Tesco revealed a big cost-efficiency programme, with a cut in capital expenditure to £1bn in 2015/16.

It aimed to make cuts of £250M and slash overheads by 30%.  Of the 43 unprofitable stores slated for closure, a significant proportion were local convenience shops. The retailer had also ditched plans to open 49 new very large stores and intended to close its generous staff pension scheme.

Another cost-cutting measure was the relocation of it its headquarters from Cheshunt, Hertfordshire to its main offices in Welwyn Garden City.

‘Very difficult changes to make’

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.”​ 

Tesco decided not to pay a final dividend for 2014/15.

Retail analyst Planet Retail predicted the results would provide some respite for “Tesco’s embattled ceo” ​but added they also proved the turnaround will be “slow, painfully so”.

Its analyst David Gray said: “Although UK like-for-like declines have narrowed from the chaos seen at Q2 ​[the second quarter], this comes at a high cost – namely to profits. The words ‘buying success’ come to mind in the wake of a festive performance.”​ Sales were driven, at least in part, by widespread vouchering activity, he said.

“The fact is Tesco is still reeling from the effects of the accounting scandal, crucially lacking the manpower to helm its largest vessel, namely the UK. Tesco will need to plug this leadership gap fast if it is to find solutions to faltering sales and lacklustre profits at home.” 

Tesco announced another step along the path to plugging the gap with the appointment of Matt Davies, boss of Halfords Group, as its new ceo UK and Ireland.

Meanwhile, Tesco's plight is likely to rock the whole food industry​, warned City analyst Shore Capital before the publication of its latest results.

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