Tesco fuels high street jitters

Tesco revealed this morning that its Christmas sales came in below forecasts – but let's not get carried away...

Last Updated: 06 Nov 2012

The UK’s biggest retailer saw like-for-like sales increase by 3.1% in the six weeks to January 5 – below analysts’ predictions (they were expecting about 4%), below its third quarter figure (4.1%), and below the figures recorded by rivals Sainsbury’s and Waitrose (3.7% and 4.1% respectively).

This immediately prompted speculation that the retail behemoth has lost market share to Morrison’s (apparently the big retail winner this Christmas, although it doesn’t report its results until next week) and led to a drop of about 5% in its share price.

Debenhams, the other big retailer to report today, hasn’t helped matters. Although it surprised analysts by recording a 2.2% rise in like-for-like sales over Christmas, its overall figure for the last quarter was largely flat – leading to another share price fall.

But a bit of perspective is surely called for here. Yes, it’s clearly a tough market if even the sure-footed Tesco comes in below expectations. FD Andrew Higginson (wheeled out to deliver the 'bad news') admitted as much on Radio 4’s Today programme this morning. But the fact remains that Tesco’s overall group sales were up 12.8%, including an 8% rise in UK sales. That’s not bad for a company that’s already a dominant force in a saturated market.

And its international operations – which Leahy has been saying for ages will be the main driver of growth in the business from now on – are going great guns, with sales up a massive 26.7%. Turkey led the way with an 80% rise, Malaysia was not far behind with 60%, and apparently the signs look ‘very encouraging’ for its new US convenience store chain Fresh ’n’ Easy.It’s also benefiting from the trend towards online shopping – website sales were up by a quarter on last year, to £190m. All of which means Tesco will probably still rake in £2.7bn profits for its current financial year.

Higginson (who also stressed the benefits to this customer from all this retail competition) said this morning that Tesco was 'thrilled to bits, particularly given how some of the other retailers' results have come out'.

Clearly the sector is so jumpy at the moment that even the slightest hint of weakness from Tesco is seen as a sign of imminent high street Armageddon. But there are plenty of retailers out there who would kill for weaknesses like these...

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