Tesco posts strong Christmas figures in the UK

Supermarket giant Tesco shrugged off the resurgence of rival chains to report another strong Christmas sales performance in the UK today.

Non-food sales and demand for its premium Tesco Finest range helped UK same-store sales rise 5.7% in the seven weeks to January 7, despite better showings from the likes of Sainsbury’s and Morrisons over the festive season.

The improvement was in line with market expectations but clouded by news on Tesco’s international arm, where sales rose by 16.1% compared with 23% growth in the previous three months. Shares were almost 2% lower today.

Tesco was the last of the main UK supermarket groups to update investors on its Christmas performance following a period of fierce price cutting in the sector.

Sainsbury’s reported growth of 5.2%, while Morrisons showed the early signs of recovery in its own festive update.

Unlike Sainsbury’s, Tesco was up against testing comparatives with the same period a year earlier. Today’s figure, which excluded petrol sales, represented an improvement on the 5.5% gain seen in the three months to November 19.

Finance director Andrew Higginson said: “We are delighted that, with the fantastic performance we had last year, we have held on to those gains. To have remained the best performer of the top four is pretty pleasing.”

Tesco continued its drive to lure in cautious shoppers by lowering the prices of its goods by around 1.5% on the previous year.

Mr Higginson said that although consumers had been cautious in recent times, they had “treated themselves” over Christmas. There was strong demand for Tesco Finest products and the firm sold 25,000 lobsters over the period.

He said the outlook was once again for a more cautious customer. And responding to the threat posed by rivals like Asda lowering prices, he said: “It’s more of the same – we’ve had this for years.”

Investment bank Goldman Sachs claimed in a report last week that Asda had continued to succeed in undercutting Tesco on prices and had made the deepest price cuts in the supermarket sector during January.

It claimed Asda was at least 2% cheaper than Tesco in areas such as drinks, pasta, prepared food and beauty products – although Tesco was still more competitive on cakes, cereals and fresh meat.

Today’s update showed Tesco continued to benefit from its drive into the non-food market, with home entertainment, electronics, clothing, toys and gifts performing strongly.

Some City experts expressed disappointment at the slowdown in international sales. Analyst Andrew Fowler, at Merrill Lynch, said there was “no surprisingly good news” outside the UK.

He believed currency changes only accounted for half of the slowing in international sales, adding: “With space growth picking up, we’d say there’s been a clear like-for-like slowdown.”

More than half of Tesco’s retail space is outside the UK, with around 100,000 staff employed in its international operations. The firm has a presence in 12 countries outside the UK, including Ireland, China, Japan, Thailand, Poland and Hungary.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: “Tesco remains something of a market mystery – the shares have remained flat over the last 12 months whilst the wider market has gained some 17%. On the whole, the consensus towards the company remains resolutely positive, although this has yet to filter through to the share price.”

Tesco’s dominance of the supermarket sector has attracted criticism from groups like Friends of the Earth, which today again accused it of damaging local shops and consumer choice.

Analysts expect pre-tax profits for the year to the end of February to come in at around £2.2bn (€3.2bn) this year.