Tesco on target for £2bn annual profits

Tesco offered its rivals no respite today after buoyant Christmas sales kept the supermarket giant on course for annual profits of more than £2bn (€2.9bn).

Unveiling record figures for the seven weeks to January 8, the UK’s biggest retailer said total UK sales were up by 12.1% with the like-for-like figure ahead by 7.6% when excluding petrol forecourt sales.

The performance underlined the dominant position of the retailer, which takes £1 in every £8 spent by UK shoppers and is estimated to have secured a 29% share of the UK retail food market over the festive period.

In contrast, Morrisons owner Safeway and Sainsbury’s have reported flat Christmas sales, while Marks & Spencer and Woolworths – both hit by Tesco’s expansion into non-food areas – have disappointed investors with their updates.

Tesco told the City that its strong sales performance over Christmas left it confident it would meet expectations for profits of at least £2bn.

The rapid growth at Tesco – it only posted profits of £1bn (€1.45bn) four years ago – has sent shares to an all-time high, although the stock slipped back 3% today as some analysts had been hoping for a slightly better sales performance.

Simon Proctor, an analyst at Charles Stanley stockbrokers, said: “This represents an excellent performance, albeit one that has slightly disappointed a market eager for yet another profits upgrade from Tesco.”

The company, which has around 780 UK stores, said customers also reaped the benefit of strong competition as its price cuts resulted in higher than normal deflation at 1.6%. It also announced £80m (€114.6m) of cuts on New Year’s Eve.

Overall, sales were up 13% with international business up 16% from countries including Hungary, Poland, Taiwan and Japan. Significant growth in petrol volumes pushed UK like-for-like sales up by 9.3% on a year earlier.

Finance director Andrew Higginson said: “It was a good Christmas for us. The credit goes to our 240,000 staff who worked their socks off to make sure customers got a good service.”

The retailer sold four million Christmas puddings during the period and highlighted its growth in the non-food sector by selling 250,000 PlayStation 2 games and even 450,000 pairs of novelty socks.

It had 174,000 checkouts open for business during the run-up to Christmas, while 4,000 head office staff worked in stores to fill shelves.

As well as international expansion, Tesco plans to trial a new store format selling only non-grocery items.

The retailer’s growth into areas such as electrical products, CDs and clothes has been blamed for putting pressure on high street chains such as WH Smith.

Friends of the Earth said Tesco’s continued growth spelt bad news for local shopkeepers and put more pressure on farmers and other suppliers.

FoE supermarkets campaigner Sandra Bell said: “Many retailers are reeling from their worst Christmas trading for years, and it is now clear that their loss has been Tesco’s gain.”