US Edition Philip Clarke has insisted he will not resign as Tesco chief executive despite the supermarket chain reporting its worst sales performance in his 40-year career at the company.
Tesco said that like-for-like sales fell by 3.7pc in the UK in the three months to May 25. Analysts at HSBC said the decline was equivalent to £1.74bn of lost revenues.
Mr Clarke said: “I have never been more determined. I’m not going anywhere. I am going to see through a fundamental reshaping of Tesco.”
He said sales had been hit by disruptions to stores while they are being refurbished and “subdued” spending by customers. The fall in sales also reflects Tesco reducing the number of voucher promotions it runs and the deflationary effect of £200m of price cuts.
The investment in price is an attempt by Tesco to move closer to Asda and the German discounters Aldi and Lidl, who are attracting shoppers at a rapid pace.
Mr Clarke admitted he had not experienced a larger fall in sales during his 40 years at the retailer, saying: “I have never seen a period of such intense transformation either for the industry.”
He said there was unlikely to be an improvement in sales over the “coming quarters”.
His downbeat tone ensured that Tesco shares, which initially rose because the results were not as bad as feared, closed down 4 at 293½p.
When asked whether the performance was due to strategic errors, Mr Clarke said the company should have been quicker in shifting the focus of its expansion from supermarkets to convenience stores. He added: “Hindsight is a wonderful thing, it is never really there when you need it.”
However, Mr Clarke insisted that Tesco is “changing” and there is “positive momentum” within the business. “The pace of change in the business is huge,” he said. “Our accelerated plans are making a real difference for customers and we are more competitive than we have been for many years.
As well as investing £200m into cutting prices, Tesco is looking to revamp 650 of its stores this year.
One top 10 investor in Tesco, David Herro at Harris Associates, gave his backing to Mr Clarke and his drive to turn around the retailer.
He said it would be “pointless” to draw conclusions from the like-for-like sales figure until Tesco had completed its store modernisation programme.
“This is a lot about nothing,” he said of the fall in sales. “It is too early to make a sound judgement on the success of the business transformation programme. It is not something that happens overnight. This is a short-term number.”
However, City analysts were less supportive.
Mike Dennis at Cantor Fitzgerald said: “Investors should be questioning management’s strategy and why the prior year’s UK investment has led to falling sales.” Ric Thakrar at Espirito Santo claimed that Tesco’s prices were expensive relative to rivals. “We argue a turnaround at Tesco could take another five years if near-term lateral thinking is not implemented,” he said.
Data from Kantar Worldpanel showed that in the 12 weeks to May 25, Tesco’s share of the grocery market contracted from 30.5pc to 29pc.
David McCarthy, analyst at HSBC, said the figures were “shocking” and suggest the number of visits by shoppers to Tesco stores is falling by more than 1m every week.
“Management admitted this decline was worse than budgeted for and blamed market deterioration but Waitrose, Asda Sainsbury’s and the discounters are all outperforming Tesco according to Kantar,” he said.
“What makes the UK like-for-likes more worrying is that they are against easy comparatives and are on the back of like-for-like losses for the last two years for Q1. Momentum has built downwards.”
Tesco suffered a further setback when New Look confirmed it had poached Mike Iddon to be its new chief financial officer. Mr Iddon was a director for planning, treasury and tax at Tesco.