Tesco rejoices after another turnover drop

More volume, more customers, lower turnover

“We set out to serve our customers a little better every day and the improvements we are making are starting to have an effect. We are fixing the fundamentals of shopping to win back customers and relying less on short-term couponing. Customers are experiencing better service, better availability and lower, more stable prices and are buying more things, more often, at Tesco”, CEO Dave Lewis said in a press release.

Lewis refers to the 1.4 % like-for-like volume growth and the 1.4 % increase in the number of transactions for the first quarter of the current fiscal year. Based on numbers provided by the Kantar Worldpanel research firm, Tesco reports to have welcomed 180,000 additional customers in the first quarter.

These customers buy more for less, and money is still the bottom line for a company like Tesco. This trend confirms the retail theory of relativity as predicted by analysts (and Tesco): a lower turnover increase was considered a bad omen in the 1990’s, while a lower turnover drop is now a reason for Tesco to rejoice and hope for better days.

Tesco is profitable in Central Europe

The four quarters of Tesco’s 2014/2015 fiscal year showed abysmal like-for-like turnover development: – 4 %, – 5.5 %, – 5.1 % and – 1.7 %, which means that the current – 1.3 % is indeed a hopeful start of its new fiscal year. Its decent end to the previous fiscal year, with more customers and volume, pointed to a possibly good start of the year.

Its – 1.3 % performance has beaten analysts’ expectations at – 1.6 to – 3 % and that is not the only good news from Tesco. Its international activities, in Central Europe and Turkey, are excellent, with a 2.2 % like-for-like turnover growth. Despite a new law in Hungary, forcing stores to close on Sunday, its local branch still managed a nearly 3 % turnover increase.

Asia is still a problem

Tesco still has a problem in Asia however, as like-for-like turnover there dropped 3 %. To get things back on track, both turnover-wise and financially, Tesco has put its South Korean Homeplus branch up for sale with a private investment firm likely to pounce. Korean like-for-like turnover dropped 3 %, while Tesco’s second largest market, Thailand, experienced a 2 % like-for-like turnover drop for Tesco Lotus.

This goes to show that Tesco’s like-for-like turnover drops are becoming increasingly smaller, both locally and abroad. Dave Lewis and his team are hoping to improve Tesco’s overall position by drawing in more customers and transactions for Tesco UK, while selling off structural problem cases (like Korea’s Homeplus) should help improve things abroad.

The accounting scandal may have delivered a swift and devastating blow, but Tesco will have to recover step by step. “A little better every day”, as CEO Lewis calls it. In another 15 weeks, it will become clear whether Tesco has managed to improve its situation once more in the second quarter.