Tesco's Turnaround Plan Bears Fruit -- Update

By Saabira Chaudhuri 

LONDON--Britain's largest retailer, Tesco PLC, delivered a stronger-than-expected performance for the first quarter in a sign that its turnaround plan is beginning to bear fruit.

The company, whose annual meeting takes place Friday, reported U.K. same-store sales excluding petrol in the three months through May 30 fell 1.3% from a year earlier, which is better than the 2.3% drop forecast by analysts at Barclays. International sales dropped by 1%, leaving Tesco with an overall decline of 1.3%.

"It's the U.K. that matters for Tesco's long-term health and here Tesco delivered a handsome beat," said Exane BNP Paribas analyst John Kershaw. "Tesco evidently is gaining traction with customers."

U.K. volumes rose 1.4% as Tesco said 180,000 more customers shopped with it.

Under new Chief Executive Dave Lewis, Tesco has been working to regain some of the traction it had before a period of slumping sales hammered profit, while the company's reputation was tarnished by an accounting scandal. In April, Tesco reported the steepest ever full-year loss for a British retailer amid a raft of charges, capping the most tumultuous year in its 96 year history.

On Friday, Tesco indicated that it may be turning a corner.

"Our first quarter results represent another step in the right direction, " Mr. Lewis told reporters. "Clearly customers are noticing that we're investing in the offer."

The company cut prices on more than 300 products during the quarter and has reduced the number of lines in stores by up to 20% as it works to simplify its offering and make space for the most popular products.

Looking forward, Mr. Lewis said he expects to see deflation for the foreseeable future and warned that there is "still an awful lot of volatility out there as we change quite a lot in our business."

In Asia, Tesco posted a 3% decline in same-store sales as its two largest markets, Korea and Thailand, saw this metric decline by over 3% and 2% respectively.

Tesco didn't offer any updates on the pending sale of its data unit Dunnhumby or on whether it will sell its South Korea business. "When we have something more definitive to share, we'll share it but we're not going to get drawn into speculation," said Mr. Lewis

Write to Saabira Chaudhuri at [e-mail]

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