Tesco Sales Growth Hits Five-Year High as Revival Continues (1)

Jan 12, 2017 3:30 am ET

(Bloomberg) -- U.K. supermarket leader Tesco Plc posted its strongest quarterly sales growth in more than five years and said it had a good Christmas as the grocer continues its revival under Chief Executive Officer Dave Lewis.

Sales at U.K. stores open at least a year rose 1.8 percent in the 13 weeks ended Nov. 26, the Welwyn Garden City, England-based retailer said Thursday, beating the 1.7 percent median analyst estimate. Growth in the following six weeks was 0.7 percent, also ahead of estimates and building on a bumper Christmas the year before.

Tesco joins rivals J Sainsbury Plc and Wm Morrison Supermarkets Plc in reporting strong holiday food demand as Britain’s grocers continue to fight back against the encroachment of German discounters Aldi and Lidl. Customers are returning after Lewis cut prices, improved service and increased product availability.

“Its laser-like focus on the core U.K. food business has halted the loss of market share against the smaller, but faster growing discounters,” Richard Lim, CEO of researcher Retail Economics, said in a note.

After initially dropping as much as 4.1 percent in London, the shares rallied and were down just 1.7 percent at 8:08 a.m.

Party Food

Tesco said its Christmas performance would have been even stronger without a boost to prior-year sales from a loyalty-card promotion. Same-store sales of food rose 1.3 percent in the six-week period, with fresh food ranges being particularly popular and sales of party food rising by almost a quarter. Clothing and toys also performed strongly with growth of 4.3 percent and 8.5 percent, respectively.

The retailer’s international unit was a drag on Tesco’s overall performance, hurt by weaker consumer spending in Thailand. Divisional sales fell 1.2 percent in the Christmas period and 0.1 percent in the third quarter.

Tesco said it’s “on track” to meet a goal for full-year group operating profit of at least 1.2 billion pounds ($1.5 billion) before one-time items. The actual outcome may be “a little bit more” than that, Lewis said on a conference call.

(Updates with shares in fifth paragraph.)

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