After reporting its first fall in profits since 1994, is Tesco now facing serious decline?

YES
Neil Saunders

Those looking for a quick turnaround from Tesco will be disappointed by the latest results, which underline deep-rooted problems. UK like-for-like sales growth has improved since the last update. However, this has been driven by more discounting; a short-term solution that treats the symptoms of Tesco’s illness, but does very little in offering a permanent cure. Indeed, it seems that alleviating the slide in sales has been bought at the expense of profit, which is down 12.4 per cent in the UK. The extent to which some parts of the international business have deteriorated is also worrying. Growth in Asia has slowed, European sales are declining, and problems persist with the American operation. Tesco is now a company fighting battles on many fronts. It used to be a company that was a global leader, but there is a palpable sense that it has now become stale.

Neil Roberts is managing director at Conlumino.

NO
Bryan Roberts

Pessimism around Tesco is largely overdone at the moment: it is far from a broken business. Although it has underperformed in its key UK market, there are early signs that the investment in its UK stores is already bearing fruit. Stores, products and service have all improved. The job now is to communicate that message to shoppers. Earnings were ostensibly disappointing, but the decline was widely flagged on the back of costly UK investment and state regulations in South Korea. There are other international concerns – the Chinese, Czech and Hungarian numbers were weak, and long-term worries over the US persist – but the upside is still substantial. Online and convenience store growth globally should be a winner, and we believe a UK recovery will be well underway in 2013. Concerned Tesco shareholders should look over the channel at Carrefour – now that is a business with problems.

Bryan Robers is director of retail insights at Kantar Retail.