Tesco's turnaround sees it beat rivals with best UK Christmas sales since 2010

 

Tesco posted its best UK Christmas sales for three years today, smashing City expectations and vindicating the £1bn recovery programme initiated last year to turn around its domestic operation.

Its chief executive, Philip Clarke, said: "We are back on form," as the supermarket giant reported the best figures of all the listed grocers. The news gave him the confidence to appoint Chris Bush as UK managing director and step back from the day-to-day running of its British operation to focus on the group's "vision and strategy".

Mr Bush, a Tesco lifer who was most recently its UK chief operating officer, fills the position vacated by Richard Brasher last March.

Tesco grew its UK underlying sales by 1.8 per cent over the six weeks to 5 January, its best performance since the same period in 2010. This compares with an anaemic 0.9 per cent rise at Sainsbury's over 14 weeks and a dire 2.5 per cent fall in like-for-like sales at Morrisons over Christmas, while Asda will update in February.

However, Tesco benefited from being up against a 2.3 per cent slump over the same period a year ago, which forced it to issue its first profit warning in 20 years in January 2012 and review its strategy.

Mr Clarke then unveiled a £1bn investment in April to turnaround its stuttering UK performance by hiring around 8,000 new staff, revamping its product offer and refurbishing its stores to give them a warmer feel.

Tesco's performance is significant, as the UK accounts for around two-thirds of the group's sales.

But overseas, Mr Clarke said: "The European headwinds continue to hold back growth with no signs of conditions improving in the short term."

Its international business grew total sales by 7.6 per cent over the six weeks, boosted by Thailand driving a better performance in Asia.

In a further reshuffle of its top team, Ken Towle, Tesco's internet retailing director, will become chief executive of Tesco's operation in central Europe when Gordon Fryett retires later this year.

Lies, damned lies and LFLs

Sainsbury’s attempted to create a kerfuffle over Tesco’s results today when it challenged its rival’s 1.8 per cent rise in like-for-like sales over Christmas. The grocer, which posted 0.9 per cent LFL sales growth in its third-quarter, emailed City analysts arguing Tesco should have used 1.4 per cent as its headline number. This, by coincidence, is what Sainsbury’s reckons its sales would have been had it, like Tesco, counted in sales under its loyalty card scheme.

When retailers report, the first figures investors often want are like-for-likes, which strip out gains from new space. However, it is a crude comparitor, and the  internet has also rendered it increasingly meaningless. For instance, Marks & Spencer’s 3.8 per cent fall in LFLs over in its third quarter actually benefited from 10.8 per cent online growth. But the 1.4 per cent fall in rival Next’s LFL sales before Christmas highlighted by analysts excluded an 11.2 per cent surge in its online and catalogue Directory sales, which would have made the results strongly positive. Furthermore, retailers that embark on a large number of store extensions can also benefit from a major uplift in LFL sales.

The City’s verdict on the spat? Tesco shares rose 1.8 per cent, while Sainsbury’s fell 1 per cent as they mostly ignored it.

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