October 2, 2013 12:20 pm

Tesco: not quite Carrefour

Latest evidence suggests UK supermarket group not recovering yet

With the nights drawing in and the temperature falling, Tesco shareholders did not exactly need more reasons for feeling melancholy. Unfortunately that is exactly what they got in the supermarket chain’s first-half numbers. Bad news is littered across the results.

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Profits in Europe are down by two-thirds; the Asian business is also going backwards; and progress in the all-important UK operation is painfully slow.

Yes there are some nuggets of good news for those willing to look hard enough. Refurbished stores in the UK are showing sales uplifts of 3-5 per cent. And by shifting its China business into a joint venture with a local specialist, the company has at least solved one of its more pressing international problems. But the overall picture is not an encouraging one.

All of which leaves Tesco fans to either lie down in a darkened room or, more proactively, look across the channel to France’s Carrefour for encouragement. Like Tesco, it has been struggling. And, like Tesco, its response under a relatively new chief executive has been to slim down the international operations and revamp the domestic stores. Carrefour shareholders are feeling the benefits, with its shares up 80 per cent in the 16 months since Georges Plassat became chief executive.

Can Tesco copy that? It will all depend on whether it can get a grip on its UK operation, which accounts for three-quarters of group sales. Operating margins at Carrefour’s French business improved by 120 basis points in the first half of the year, albeit from a low base. Tesco’s UK business pushed up its margins by just 2 basis points in the same period. Refurbishing stores to push up sales growth numbers is all well and good, but of little benefit if it does not drop through to the bottom line. One day, Tesco may be a great recovery story. But on the evidence of the first-half numbers, that day has not yet arrived.

Email the Lex team in confidence at lex@ft.com

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