Tesco drive to reverse falling profits gathers pace

Tesco revealed its best UK sales growth in three years today as the chain's drive to reverse falling profits gathered pace over Christmas.

Like-for-like sales in the UK grew by 1.8% in the six weeks to January 5 after a big improvement in food following last year's disastrous showing.

Chief executive Philip Clarke said the seasonal performance was encouraging but added there was “a lot more to do” as the market leader looks to recover from last year's first drop in profits for two decades.

Tesco shares opened 3% higher today. While the sales figure was better than City expectations, it was helped by comparisons with the previous Christmas, when the chain admitted it messed up its pricing strategy in a performance that wiped billions of pounds from its share price.

Having taken over the running of the UK division last year, Mr Clarke announced today that Chris Bush, who has worked for the company for 30 years, is to join the Tesco board as UK managing director.

Mr Clarke's turnaround strategy has brought significant investment on a range of initiatives, including an additional 8,000 staff and the launch of its Everyday Value range, which has replaced Tesco Value.

Mr Clarke said today that Everyday Value and its upmarket equivalent, Finest, outperformed the business as a whole, with customers responding to a much stronger seasonal offering in these ranges.

He added that more work was needed to improve Tesco's performance in general merchandise, although he said the trends were better over Christmas.

In line with other retailers, Tesco said it enjoyed a strong online performance, with food sales growth of 18%. More than half a million food orders were fulfilled in the week before Christmas, with nearly 5% being picked up by customers using its drive-through Click & Collect service.

Despite the UK sales improvement, Seymour Pierce analyst Kate Calvert said it was too early to call a recovery in Tesco's performance.

She said: "There is still much to be done given general merchandise remains a drag and we believe there will be no visibility on whether UK profits have bottomed until the second half of 2013."

PA