Tesco trading picture cheers retail sector

Tesco, Britain's second-largest supermarket operator, surpassed City expectations with a bullish trading statement yesterday. Like-for-like sales for the 20 weeks to 31 December were up 3.8 per cent, with trading in December 7 per cent higher. Tes co said sales of fruit, vegetables, music and videos were particularly strong.

In France, sales at the Catteau subsidiary were up by 19.5 per cent in the second half, compared with 12.5 per cent in the first six months.

In line with other retailers, Tesco reported a sluggish October and November, with sales increasing during the final weeks before Christmas. Sir Ian MacLaurin, chairman, said: "Our performance was better than many retailers."

The trading statement was the first to include the contribution from William Low, the Scottish supermarket chain bought by Tesco for £247m in a fierce takeover battle last summer. Sir Ian said the stores had performed well under Tesco's control and had benefited from the introduction of Tesco ranges such as the budget-price Value Line.

The 12 branches of William Low in England will trade under the Tesco name from this weekend, and the 45 Scottish stores will be re-branded by the autumn.

Sir Ian said that the effects of tighter planning controls on out-of-town stores would be redressed by building more small, in-town stores and Tesco Metros, the chain of mini-stores in inner city areas. Tesco has 10 smaller stores at present and will open a further 10 this year.

The statement encouraged City analysts to upgrade their full-year profit forecasts to around £590m-£604m. It also prompted analysts to reappraise their views of other food retailing stocks.

Andrew Fowler of the stockbroker UBS raised his forecast for Argyll, the Safeway group, from £380m to £390m. "At the very worst, these stocks are fair value," he said.