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Tesco sales fall over Christmas; dividend scrapped

Tesco fights to revamp reputation

Embattled U.K. supermarket chain Tesco reported that sales fell over the Christmas period and announced that it would not be paying a final dividend to shareholders this year.

Like-for-like sales, excluding fuel, fell 2.9 percent in the 19 weeks to January 3, and dipped 0.3 percent for the six-week Christmas period, it said in a trading statement on Thursday. Tesco also announced that it would not be paying a final dividend for the 2014/2015 period, in a move likely to disappoint its shareholders.

The sales figures mark an improvement from a 5.4-percent fall in its second quarter, and Tesco stressed that its online shopping, fresh food and general merchandise sectors had performed well in its home market during the holiday period.

Pradeep Pratti, an analyst at Citi, had predicted sales down around 3.5 percent over the Christmas period, compared with the previous year.

"A broad-based improvement has built gradually through the third quarter, leading to a strong Christmas trading performance," CEO Dave Lewis said in Thursday's statement.

"We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation. "

The company also announced a new CEO for its U.K. and Ireland business, a restructuring of store management and the closure of 43 "unprofitable" stores. It hopes to deliver savings of around £250 million ($373 million) for the year, it said.

Shares of Tesco had risen around 13 percent by early afternoon trade on Thursday.

Lost its way?

A Tesco supermarket in Glasgow, Scotland.
Jeff J Mitchell I Getty Images

Rahul Sharma, retail analyst and founder of Neev Capital, called the results "fairly encouraging," but refrained from saying they marked a turnaround for the supermarket chain.

"U.K. consumers have a habit of treating themselves at Christmas. So you can't necessarily call this improvement a trend," he told CNBC Thursday.

Tesco has lost its way in terms of pricing, he said, but added that if it began to sell the right kinds of goods at the right prices, it could get back on course.

Bryan Roberts, director of retail insights at Kantar Retail, said there were some real "bright spots" in the results, as tough decisions were made.

"A long way to go, but Dave Lewis is pulling the business in the right direction," he said in a note after the release.

The grocer also announced overnight that it was cutting the prices on "hundreds of branded products." Tesco said it was in response to demands from customers for "simpler, lower and more stable prices", but also comes at a time of weak global price growth, with data published Wednesday revealing that the euro zone has slid into deflation.

The travails of Tesco, the biggest of the four main U.K. supermarkets, have been well-documented. Dave Lewis, its new chief executive, has been in charge for a little over three months, but has already had to deal with a high-profile accounting scandal and profit warnings.

Marks & Spencer sales fall

Tesco's problems are far from unique, however. Also on Thursday, Marks & Spencer (M&S) reported a 5.8 percent drop in underlying sales for the Christmas period, which it said was accentuated by online delivery problems.

Meanwhile, sales at J. Sainsbury – or Sainsbury's -- fell in the last three months, it announced on Wednesday. Same-store sales, excluding fuel, for the 14 weeks to January 3 fell 1.7 percent, and slipped 3.9 percent when fuel sales were included.

Sainsbury's also said it was cutting around 1,000 prices in an effort to maintain its market share in the competitive supermarket space. Asda, which is owned by Wal-Mart, has announced similar cuts, confirming that widespread discounting has sparked a price war in the deeply competitive sector.

There are a number of issues plaguing the U.K. retail landscape, including long-term changes in consumer trends and competition from discounters like Germany's Aldi and Lidl.

- CNBC's Catherine Boyle and Holly Ellyatt contributed to this report.