Tesco interims to show profit rise but UK sales growth trails Sainsbury

Published on Saturday 3 October 2009 13:38

TESCO, Britain's biggest retailer, is set to report slower underlying UK sales growth than rival J Sainsbury for the fifth quarter in a row next week, alongside a small rise in first-half profit.

Tesco delivers its interim results on Tuesday and analysts expect to see signs that it is beginning to close the gap on faster-growing competitors, such as Asda and Morrisons, as well as Sainsbury.

While Sam Hart, retail analyst with Charles Stanley, said Tesco is set to report another solid set of interim results, the figures will be complicated by the inclusion of its financial services business as a consolidated entity for the first time. The figures will reflect an increase in net debt following the supermarket's purchase of Royal Bank of Scotland's stake in Tesco Personal Finance for 1billion last summer.

Hart said that Tesco's high UK market share – around 30 per cent – makes it difficult for it to outperform the industry, particularly when Morrisons and Sainsbury remain in "recovery mode" after years of under-performance.

Tesco, which runs around 4,300 stores in 14 countries, is also more exposed to discretionary non-food items, which have suffered more than groceries in the recession. Analysts said that some of the under-performance has been self-inflicted. Tesco launched a cheaper range of discount brands in September last year, which helped to stem the flow of customers to hard-discounters like Aldi and Lidl in the recession, but depressed the amount of money it takes at the till.

The City expects Tesco to report a 3.4 per cent rise in sales at British stores open at least a year, excluding fuel and VAT sales tax, for its second-quarter ending 29 August. That would be down from 4.3 per cent in the first quarter, due in part to a tougher comparative number last year and to falling food price inflation.

Sainsbury, Britain's third-biggest grocer, is expected to report a 5.6 per cent rise in sales on the same basis for the 16 weeks to 3 October, down from 7.8 per cent in the first quarter for the same reasons.

Tesco's total sales for the six months to August 29 are tipped to climb 10 per cent to 28.1bn. Pre-tax profit is forecast to rise 2 per cent to 1.48bn.

But the supermarket giant was dealt a blow on Friday by the Competition Commission's formal recommendation of the introduction of a test to prevent the spread of "Tesco towns".

The test would measure if a supermarket chain dominated a local market before granting permission for further stores.