Tesco reports 'challenging' conditions

Supermarket giant Tesco today said its new discount ranges weighed on UK sales growth as the retailer reported "challenging" conditions across all markets.

In the UK, like-for-like sales excluding fuel grew 2.5 per cent in the seven weeks to 10 January - in line with market forecasts, but much weaker than rival Sainsbury's.

Market leader Tesco introduced the discount ranges last year to combat rivals such as Aldi and Lidl.

The supermarket said its UK performance was "steady" with the initiative continuing to drive increased volumes and customers.

Finance director Andrew Higginson said Tesco's UK Christmas trading figure was the weakest "probably since the last recession".

But he added: "In a price sense we are very competitive in the market now... so we are happy with our position."

Despite the tougher conditions Tesco will continue to invest in the UK market and its store opening programme will create 10,000 jobs this year, Mr Higginson added.

The 2.5 per cent growth represented a slight increase on the 2 per cent seen in the third quarter. Taking into account December's VAT cut, comparative sales grew by 3.5 per cent, the retailer said.

The supermarket hopes the extra custom driven by its discount ranges will offset the blow to sales, but its growth is just over half the 4.5 per cent posted by Sainsbury's last week.

Morrisons has yet to report, although it is set to be the Christmas winner with sales growth of around 9 per cent.

There were some glimmers of light for Tesco as the group's non-food sales strengthened slightly on the third quarter, with market share gains across electrical, clothing and entertainment categories.

Online sales were also strong in the run-up to Christmas. Total sales from tesco.com and Tesco Direct were up more than 18 per cent to £273 million over the seven weeks, with sales of digital products such as televisions and laptops "particularly pleasing".

Its international performance was bolstered by the weakness of the pound and strong trading in Asia, with total sales up 32.7 per cent.

The group has 440,000 staff worldwide, with 280,000 based in the UK. The firm has 2,184 UK stores but trades in 13 other countries with 3,956 outlets worldwide.

Shares in Tesco rose 2 per cent following the update, with Seymour Pierce analyst Freddie George calling the UK figures "disappointing but in line with expectation".

Panmure Gordon's Philip Dorgan said the performance was "not good enough", but added: "We expect Tesco to increasingly benefit from tightening UK trading conditions and questions about its competitors' long-term growth prospects."