Tesco’s Irish operation suffers sizeable erosion in bottom line

Tesco shares received a fillip after sales dropped by less than forecast in the first fiscal quarter, but the pain goes on in Ireland. Like-for-like sales here, excluding VAT and fuel, dropped 4.4 per cent in the period to May 30th. Irish revenues have now declined for 11 straight quarters.

Admittedly the current rate of decline is not quite as bad as in the previous trading year, Tesco’s annus horribilis. Irish revenues fell 5.6 per cent in the first quarter last year and final quarter trading finished with a 6.7 per cent drop. Still, the Irish business remains under pressure in a big way.

“We have made a significant investment in lower prices for our customers in the Republic of Ireland with prices now frozen across more than 1,300 staple products,” Tesco said.

“This corresponded to an improvement in our like-for-like sales performance against the previous quarter, although this was still held back by a difficult competitive environment including high levels of competitor couponing.”

Take note, too, that the rate of quarterly decline in Ireland is still far greater than in Tesco’s main British operation, where first quarter sales were down 1.3 per cent. In the same period last year, the rate of decline was 4 per cent.

There is more. Tesco said currency movements “significantly impacted” total sales at actual rates in Ireland, central Europe and Turkey.

This flows, of course, from the euro’s weakness against sterling, a function of the European Central Bank’s massive bond-buying campaign. Although Tesco said this was “largely offset” by favourable currency movements in Asia, the magnitude of the impact in the Irish setting is quite something.

At actual rates, Irish first quarter sales dropped by no less than 14.7 per cent. While currency fluctuations are unavoidable in any large international business, this still constitutes a sizeable erosion of the bottom line benefit Tesco derives from the Irish unit. At constant rates, the sales drop was 2.7 per cent.