Tesco trounces rivals with 9.8% sales rise

Shares in Tesco shot to a record high yesterday after it stunned the City with its ninth consecutive quarter of accelerating like-for-like sales, putting it on course to make more than £2bn in pre-tax profits this year.

The supermarket giant outstripped rivals with underlying UK sales growth of 9.8 per cent in the three months to 20 November. Even excluding petrol, like-for-like sales grew by 7.5 per cent, confounding analysts' expectations that growth would ease during its second half. Its shares topped the FTSE 100 leaderboard, rising 10.75p to 308.75p.

Tesco's strong sales growth prompted lobby groups, including Friends of the Earth and the Association of Convenience Stores, to call for a fresh competition inquiry into the supermarket sector. A spokesman for Friends of the Earth said: "The Office of Fair Trading has so far turned a deaf ear on concerns about loss of small shops, bullying of suppliers and erosion of consumer choice."

Tesco's sales during its third quarter rose 12.2 per cent, buoyed by growth overseas. The group has continued to expand its share of the non-food market in the UK, particularly in clothing and electronics. It launched a line of "Value" electrical goods this month, ranging from a £5.76 cordless kettle to a £19.97 vacuum cleaner.

Analysts heaped praise on Tesco, which they said was taking market share from its competitors. Asda's underlying sales growth has halved this year to 4 per cent. Andrew Kasoulis, at Credit Suisse First Boston, called Tesco's performance "stunning", while analysts at Dresdner Kleinwort Wasserstein deemed it "spectacular".

Tesco's drive to lower prices meant its stores saw deflation for the second successive quarter. It said efforts to limit fuel price rises meant petrol volumes grew "exceptionally strongly". Tesco has said it is investing £5m a week in lowering prices. It predicted digital cameras would be among its top 10-selling Christmas gifts, after it cut the price of its 4-megapixel digital camera to £49.97.

Analysts at JP Morgan said yesterday's figures "confirmed that [Tesco's] outperformance has widened in what has been a very price competitive year with fundamental changes to industry structure".

Wm Morrison, Asda and J Sainsbury have made a huge effort to cut prices this year in an attempt to woo back customers who have transferred their loyalties to Tesco. But a spokesman for Tesco said the group had seen "no impact" from the former Safeway stores that have been rebranded as Wm Morrison.

Given the lack of underlying growth across the sector and the likelihood that Tesco will step up its investment in prices, analysts only nudged their profit forecasts higher. Iain McDonald, at Numis Securities, raised his pre-tax profit forecast to £2.07bn from £1.99bn.