Tesco: €70m Irish plan as growth outstrips UK

by Eamon Quinn

Tesco has committed to a €70m investment, new outlets, and the refurbishment of existing stores in the Republic.

Sales growth here over Christmas outpaced stores in the UK, where the Brexit effects of a sinking sterling have weighed on retailers.

Tesco, which has 149 stores in the Republic, will revamp 40 stores this year, part of a €70m injection, which includes the opening of a €30m centre at Liffey Valley.

Tesco Ireland chief executive, Andrew Yaxley, said fresh foods sold “particularly well” over Christmas, and it posted “double-digit growth” for its own clothing range.

In the Christmas period, Tesco stores in the Republic posted sales growth of 4%, compared with the 1.9% growth in the UK, while in the 19 weeks to January 6, sales grew 3.5%, compared with 2.1% in the UK. That was the highest growth rate in market share in five years in the third quarter, which covers the 13 weeks to November 26.

At the start of last year, the rate of growth in sales at Tesco Ireland had lagged that of the UK. In Britain, with other supermarket rivals and fashion retailers, Tesco has faced strong headwinds from increased costs and prices. These have curbed consumer spending, caused by sterling’s slump of 15% since the UK voted in June, 2016 to leave the EU.

In the Republic, the surge in the value of the euro against sterling should have led to significant price cuts, because many goods in supermarkets here are shipped from across the Irish Sea. In a group-wide update covering its Christmas trading in stores in Britain, Ireland, continental Europe, and Asia, Tesco said it had strived not to pass on higher prices in Britain.

“Whilst inflationary pressures remain in the UK market as a whole, we have continued to work with our supplier partners to help mitigate the impact on our customers. As a result, we have passed on less inflation to date than our competitors.”

it said.

But in the UK, where Tesco is the largest grocer, it missed its Christmas trading forecasts, as strong food sales were offset by weak demand for items such as DVDs and computer games, and also weighed down by the collapse of the Palmer & Harvey tobacco supplier.

Analysts at Bernstein said Tesco’s like-for-like food numbers were “very strong”, but its overall Christmas could disappoint, due to tobacco and general merchandise.

Yesterday, shares in Tesco fell 5%, the second-worst stock-market performer in London, after Marks & Spencer reported a fall in its like-for-like Christmas sales.

M&S clothes fell in the last quarter of 2017, hampering the retailer’s latest attempt at a corporate turnaround and knocking its shares. Its shares slid as much as 7%.

“I would describe the consumer as quite fragile and quite volatile, and if there’s a reason not to spend, they take it,” M&S chief executive, Steve Rowe, told reporters.

Meanwhile, shares in the world’s third-largest jewellery and luxury glassmaker and retailer, Pandora, slumped 11%, after it missed its own 2017 sales forecasts and warned of thinner margins ahead.

In a trading update, Pandora, which manufactures in Thailand, said higher production costs for more complicated jewellery and more stores would, however, put pressure on earnings.

Additional reporting by Reuters

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