Sluggish Tesco sales in UK offset globally

City A.M. Reporter
SOLID sales growth overseas is likely to help Tesco offset sluggish performance in its main British market when the world’s third-biggest retailer publishes a third-quarter trading update tomorrow.

Analysts believe Tesco’s sales growth from British stores open at least a year has lagged its rivals, partly because it sells more discretionary non-food goods, items where shoppers have cut back amid economic worries.

Half-year results from electricals group Kesa on Wednesday and music and books retailer HMV on Thursday, as well as a trading update from computer games firm Game Group on Wednesday, are likely to underscore tough conditions for UK non-food specialists, exacerbated by recent bad weather.

Some analysts are disappointed by Tesco’s performance in Britain, particularly after initiatives such as the doubling of its Clubcard loyalty points last year.

“There is ... some concern about the apparent lack of traction which Tesco has gained in its attempts to re-energise the sales performance of the UK business,” UBS analysts said.

The loyalty points themselves are a point of controversy, as Tesco counts sales made with vouchers as cash sales, which some analysts think flatter its figures compared with rivals such as J Sainsbury, which exclude vouchers from sales.

However Tesco, which makes about two-thirds of sales and profits in Britain, has said the impact of vouchers on sales is small and its performance against peers is broadly comparable.

More bullish analysts argue Tesco is holding its ground at home – with any slight sales underperformance offset by strong profit margins – while expanding rapidly into fast-growing areas such as emerging markets and financial services.