Tesco sales hit by collapse of wholesale giant

TESCO emerged as the surprise disappointment of the crucial Christmas period on Thursday, as sales were derailed by the collapse of wholesaler Palmer & Harvey.

The demise of the firm, which cost 2500 jobs, put strain on the supermarket at a crucial time and “took the shine” off decent festive trading, chief executive Dave Lewis admitted.

He said: “We were their largest customer and they did quite a lot of work for us — tobacco, fresh and frozen food.

“It was an important part of our logistics operation and it’s extremely unfortunate what happened in November. It brought complex challenges in what is our busiest time of the year and it was hard to recover as we made those changes.”

Although same-store sales rose 2.3% for the 19 weeks to January 6 and the grocer had record-breaking sales in the four weeks to Christmas Day, the City was unimpressed with sales growth of just 1.9% over Christmas, well short of analysts’ hopes.

It came after rivals Morrisons and Lidl posted strong results this week.

The shares were down 4%, or 8.2p, at 203.7p. Analysts had been expecting a rise of up to 3.2%.

Lewis also struck a cautious note for the year ahead as more shoppers feel the squeeze on their wallets.

He said: “We’ve seen consumer sentiment has changed. We’re thinking: how can we make an offer that’s beneficial [for shoppers] when they’re thinking how they can make their money go a little further?”

Bryan Roberts, of retail consultancy TCC Global, said: “Despite many predictions that Tesco had ‘won’ Christmas, that accolade is instead being shared by Morrisons and the Co-op.”

But George Salmon, an analyst at fund giant Hargreaves Lansdown, said things could be looking up for Tesco with the impact of Palmer & Harvey in the rear-view mirror. He added: “underlying sales momentum is building. Third-quarter UK like-for-like sales growth is higher than has been reported for some time. Some of this is being driven by food price inflation, although Tesco’s strength relative to its suppliers means it’s passing on fewer price increases than its competitors.”

The grocer maintained its profit outlook for the full year.