Tesco sees robust global recovery, no double dip

Tesco sees robust global recovery, no double dip

By Reuters

London: Tesco, the world’s third-biggest retailer, believes the global economy is recovering strongly and growth in emerging markets will help to prevent developed economies from falling back into recession.

The British group, which beat forecasts with a 14% rise in first-half underlying profit, also said on Tuesday it expected its loss-making US business Fresh & Easy to break even in 2012-13.

“My starting point is the global economy, which is in a pretty robust recovery," chief executive Terry Leahy told Reuters in a telephone interview.

When asked whether he thought developed markets like Britain might fall back into recession, Leahy said, “I don’t think it will. If you look at the customer psychology and the pulling power of the developing markets, I think they will pull Europe and the United States into a stable and established recovery."

Tesco, with over 4,800 stores in 14 countries, said profit before tax and one-off items rose to £1.79 billion ($2.8 billion) in the 26 weeks to August 28, helped by growth in Asia, productivity gains, property deals and lower interest costs. “A tad ahead of expectations," said Arden Partners analyst Nick Bubb, who has an “add" rating on Tesco’s shares.

However, trading profit met forecasts with a 9% increase and sales growth in Britain, where Tesco makes about two thirds of sales and profits, remained sluggish.

Tesco, world No. 3 behind France’s Carrefour and US leader Wal-Mart, said group sales rose 7%, excluding VAT sales tax, to £29.8 billion, just below analysts average forecast of 30.1 billion in a Reuters poll.

Second-quarter sales at UK stores open over a year rose 0.4%, excluding fuel and changes in VAT, up from 0.1% in the first quarter and in line with analysts’ mean forecast.

J. Sainsbury, Britain’s No.3 grocer, is expected to report stronger growth in its fiscal second quarter on Wednesday, helped by more affluent shoppers.

Tesco shares have lagged the STOXX 600 European retail index by 7% this year amid concerns about returns on international investments, particularly in the United States.

One trader said the shares were set to open 0.8% higher after closing at 430 pence on Monday, which valued the business at about £34.4 billion.