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January 12, 2010

UPDATE: UK: Tesco “juggernaut” back on track – analyst

The Tesco “juggernaut” is firmly back on track, according to analysts after the UK retail giant reported its "strongest" Christmas in three years.

The Tesco “juggernaut” is firmly back on track after the UK retail giant reported its “strongest” Christmas in three years, analysts have argued today (12 January).

Tesco saw group sales increase 7.5% at constant exchange rates (6.9% at actual rates) in the six weeks to 9 January, boosted by a raft of price cuts and a surge in the use of Clubcard vouchers.

Tesco’s like-for-like sales excluding petrol and including VAT increased by 5.1% in the period – and 4.9% excluding VAT.

Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers, said the firm had enjoyed “formidable growth” during the festive season and, with the exception of its fledgling US business, the numbers were “strong” across the board.

“The Tesco juggernaut is firmly back on track,” Hunter said. “Not only has the performance been underpinned by its staple products, non-food items such as electricals and clothing and the overall international contribution have impressed investors in early trade.”

Hunter added that, even within the core business, consumers have been trading up towards the top end of the range, mirroring a desire to “spend a little extra”, as evidenced by similar findings from the likes of Waitrose and Marks and Spencer.

“Even though Tesco have echoed the inevitable caution for consumer spending over a difficult 2010, its winning formula seems to have been rediscovered,” Hunter insisted. “The share price has lagged the wider progress of the FTSE100 of late, rising 17% over the last six month versus an index gain of 34%. Yet, with the company once again firing on all cylinders, the current general market view of a strong hold will inevitably be subject to upgrades.”

In the UK, Tesco said total sales outperformed the industry as a whole, increasing by 8.3% compared with the same period last year.

Darren Shirley, market analyst for Shore Capital, said Tesco’s statement proved it had “clearly had a good Christmas”, particularly in the UK.

“The UK figure, stripping out the Clubcard effect, was somewhere above our initial thoughts on what they would achieve, we had forecast around 3%,” Shirley told just-food.

However, he added that Tesco’s international sales were “a little below” expectations.

In Europe, sales grew by 0.8% at constant exchange rates but fell by 2.2% at actual rates. In Asia, sales increased by 7.8% at constant exchange rates and 8% at actual rates.

“In terms of international, it was a little below our expectations in Europe by a couple of percent, but in line with our expectations in Asia,” Shirley said.

“We were encouraged because of the management who said that they expect an improvement in like-for-likes over the period. But they should be returning to good strong growth and international growth going forward.”

Tesco’s preliminary results for 2009/10 are expected to be released on 20 April.

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