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Tesco says global recovery building, UK to pick up

Tesco says global recovery building, UK to pick up
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First Published: Tue, Jun 15 2010. 02 52 PM IST
Updated: Tue, Jun 15 2010. 02 52 PM IST
London: Tesco, the world’s No.3 retailer, said the global economic recovery was building and growth in its main UK market would pick up after quarterly sales were hit by lower food price inflation and higher fuel costs.
The supermarket group, which runs over 4,800 stores in 14 countries, said on Tuesday sales rose 8.2% in the 13 weeks to 30 May, the first quarter of its fiscal year, as growth overseas offset a flat underlying performance in Britain.
“The long-term global recovery is well underway although the pace and strength of economic recovery varies across our markets,” said chief executive Terry Leahy, who surprised investors last week with plans to retire early.
Finance Director Laurie McIlwee said growth in Britain would rise as comparatives become easier, but urged the government to keep VAT sales tax steady for now, even as it looks to rein in a record deficit in an emergency 22 June budget.
“At the moment the economy is recovering, but it is pretty fragile, and so a VAT increase in the future would be more appropriate than one that is immediate,” McIlwee said.
Retailers across the world are struggling to emerge from a long and deep recession as governments look to reduce their debts and consumers, worried about high unemployment and rising taxes, remain cautious about spending.
Tesco, which makes more than two-thirds of sales and profits in Britain, said sales at UK stores open at least a year rose 0.1%, excluding petrol and adjusting for VAT, in line with the average forecast in a Reuters poll of analysts.
That is the weakest performance for years, but within the range recently reported by rivals Asda and Wm Morrison as Britain’s grocers all battle higher fuel prices and a drop in food price inflation.
J Sainsbury, Britain’s No.3 grocer, is expected to report a 0.2% rise in first-quarter underlying sales on on Wednesday.
“This is a solid statement and ought to reassure, but we suspect investors may well remain cautious ahead of next week’s budget,” said JP Morgan Cazenove analyst Gillian Hilditch of Tesco’s performance.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, was less impressed.
“Tesco is struggling to make the kind of headway to which the market has become accustomed,” he said.
Evolution analyst Dave McCarthy also said Tesco’s underlying UK performance was boosted about 1 percent by the fact it does not use the IFRIC 13 accounting rule for its Clubcard loyalty card, which Sainsbury’s figures will include.
At 1:40pm, Tesco shares were flat at 391.8 pence, in line with the STOXX 600 European retail index. They have underperformed that index by 5% this year.
Tesco said Britons were having to cut back on groceries because of a 30% year-on-year rise in petrol prices. UK like-for-like sales including petrol were up 3.8%.
The group also saw underlying signs of a consumer recovery, such as a rise in sales of its premium Finest range and growth in like-for-like non-food sales, led by games and televisions.
McIlwee said the group still expected UK underlying sales growth of about 3% over the full financial year.
Overseas sales climbed 11.9% at actual exchange rates and excluding fuel, with a rise in underlying sales in mainland Europe and the United States offsetting a small fall in Asia.
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First Published: Tue, Jun 15 2010. 02 52 PM IST
More Topics: Tesco | Corporate | UK | Prices | Recession |