Tesco bucks recession as overseas sales soar

But growth at UK stores is likely to be overtaken by that of its smaller rivals
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The Independent Online

The retail giant Tesco trumpeted the strength of its international business yesterday and robust UK first-quarter figures, but the grocer's domestic sales continue to lag substantially behind its big three rivals.

The UK's biggest supermarket chain posted a 12.6 per cent rise in group sales, excluding petrol, as international sales rose 20.1 per cent at actual exchange rates for the 13 weeks to 30 May.

Lucy Neville-Rolfe, Tesco's corporate and legal affairs director, said: "Obviously, it has been a very difficult period in the economies that we operate and we have had very good growth, which demonstrates how useful our broad strategy is. Asia went into recession the latest and China is already beginning to show signs of recovery."

Tesco – which operates in 14 countries, including the US, Poland and the Czech Republic – said sales grew by 43.8 per cent in Asia, helped by favourable exchange rates with the weak pound and an "excellent performance" in South Korea.

In the UK, Tesco posted like-for-like sales, excluding petrol and VAT, up by 4.3 per cent, marginally down on the 4.4 per cent delivered in the first six weeks of its financial year.

While analysts at Shore Capital said this was Tesco's strongest UK underlying sales since the first quarter of 2007, its rival Sainsbury's is expected to post first-quarter underlying sales of 6.4 per cent today and Morrisons delivered an 8.2 per cent uplift, excluding fuel and VAT, for the 13 weeks to 3 May. For the three months ended March, Asda posted first-quarter like-for-like sales of 8.4 per cent, excluding petrol, the timing of Easter and the effect of a leap day in 2008.

Andrew Kasoulis, at Credit Suisse, said: "Although Tesco still lags its main peers in terms of headline like-for-like sales, Q1 sales are further evidence that the absolute performance remains very robust." Credit Suisse expects a "gradual convergence" in underlying sales among the big four grocers over the rest of the year. Last September, Tesco started introducing hundreds of discount brand products to fight back against the discounters Aldi and Lidl.

Tesco also relaunched its ClubCard with £150m on 11 May in a move that lets customers exchange vouchers for double value rewards tokens in store and online on a wide variety of products. Ms Neville-Rolfe said it had already hit its target of more than one million customers doubling up their vouchers. "ClubCard has [particularly] helped with clothing and wine," she said.

Overall, Tesco said that its UK non-food business had "resumed modest like-for-like growth", citing an improved performance on electricals, homewares, horticulture and toys. However, some City analysts said the return to form of its non-food implied its underlying food sales had slowed. Jonathan Pritchard, at Oriel Securities, said: "We continue to believe that Tesco's UK marketing lacks verve at the moment and have never been convinced by the discounter ranges."

Total UK sales, excluding petrol, jumped 9.3 per cent, boosted by revenues from Tesco Personal Finance unit.