Tesco says UK sales are now ahead of rivals

Grocer posts 8.6 per cent uplift in underlying profits to just under £1.6bn

Tesco's chief executive Sir Terry Leahy said its UK sales had turned a corner and moved ahead of its big rivals, as he trumpeted that the domestic economy had "passed its low point and things were getting better".

His comments came as Tesco, which operates in 13 markets outside the UK, reported an 8.6 per cent rise in underlying pre-tax profits to £1.57bn for the 26 weeks to 29 August, which was ahead of City expectations.

The UK's biggest supermarket's underlying sales have fallen behind those of Asda, Sainsbury's and Morrisons for the past year, supported by recent industry data from TNS Worldpanel.

But Tesco said its like-for-like sales, which strip out the impact of new space, had converged with the industry and were now growing faster than its major competitors in the second half, backed up by data from industry body IGD.

Sir Terry said: "We are not lagging behind. We are growing market share in value and volume terms." He added: "[Our] like-for-likes are now ahead of our competitors."

Over the half-year period to 29 August, Tesco posted a 3.7 per cent rise in UK like-for-like sales, excluding petrol and adjusted for VAT, following growth of 3.1 per cent in the second quarter. Its rival Sainsbury's posts its second-quarter figures today.

But Tesco will have received a major boost in recent weeks from a £200m investment in its ClubCard scheme in August – with double loyalty points on purchases, following a £150m relaunch in May. Customers will also receive the double-point vouchers in the post in November, ahead of the crucial Christmas trading period. Tesco has added 1 million new ClubCard customers since May.

Tim Attenborough, an analyst at Exane BNP Paribas, said that Tesco's forthcoming sales will also receive an annualised boost as they come up against the launch of its discounter brands in September 2008, which lowered its overall food price inflation.

On the UK economy, Sir Terry stuck an upbeat tone about consumer spending and the outlook for next year, compared to recent gloomy comments from the chief executives of Marks & Spencer and Next, Sir Stuart Rose and Simon Wolfson, respectively.

Sir Terry said that its ready meals, non-food – notably clothing, electricals, home ranges – and premium and organic sales were growing again. He added that customers had stopped trading down and were shopping around less. "We have passed the low point, things are getting better. I think non-food is a good barometer of that, in that at the beginning of the recession non-food was in negative like-for-like and it's now positive 2 per cent."

He added: "Ready meals had a bit of a bad run going back to Jamie's [Oliver] School Dinners and the recession but they are now growing again."

Group sales at Tesco rose by 8.3 per cent to £30.4bn over the half-year to 29 August. Overseas, the retail giant singled out robust performances in South Korea, Thailand, Poland and Hungary although its US operation, Fresh & Easy, continues to find the going tough. In South Korea, Tesco said the converted Homever stores, which it acquired, have delivered sales uplifts of about 40 per cent. Of its international markets, Tesco will make the biggest investment of £500m in China this year, where it expects to open 19 hypermarkets. It also has 20 multi-level freehold shopping centres in the pipeline and will open its first three this financial year.

Tesco has relaunched Fresh & Easy, with a broadened product offer and new ranges and Sir Terry said it was making "good progress", particularly in the stores on the coast in California. But he said its like-for-like sales had "softened", as result of the sharp downturn in Nevada, Arizona and inland California. In UK, Sir Terry lambasted the Competition Commission's decision last week to formally recommend the introduction of a test in the planning system to rein in the expansion of the biggest grocers. He said the commission's competition test was trying to "solve a problem that did not exist" for consumers, adding he "doubted" the test would come to fruition.

Bank bonus: Tesco current accounts on the way

The UK's biggest supermarket yesterday publicly rebranded its financial services arm to Tesco Bank – ahead of it launching its first bank accounts as early as the end of next year.

Sir Terry Leahy, the chief executive of Tesco, said: "It's definitely an opportunity for us." The rebranding to Tesco Bank from Tesco Personal Finance follows the grocer completing the acquisition of TPF, the joint venture it formed with Royal Bank of Scotland, for £950m in December. For the 26 weeks to 29 August, Tesco Bank delivered total revenues of £420m and a trading profit of £115m.

However, Laurie McIlwee, the grocer's finance director, said it did not have "any plans" to acquire the beleaguered state-controlled lender Northern Rock.