Tesco looks abroad as UK sales growth grinds to a halt

Despite flat sales at home, Tesco still sounded relatively optimistic about the UK's prospects today...

Last Updated: 06 Nov 2012

At first glance, Tesco’s latest UK quarterly results look pretty disappointing: like-for-like sales were up a measly 0.1%, once you strip out the impact of the VAT hike. Given some of the growth figures posted by the likes of Waitrose lately, that sounds pretty lacklustre. However, Tesco (like all the big retailers) was always going to have a hard time matching its figure for the same period last year, when food prices were soaring – and it’s still predicting UK sales growth of around 3% for the year. What’s more, its international business – the realm of CEO-designate Philip Clarke – continues to expand at a rate of knots...

Tesco FD Laurie McIlwee suggested there was nothing to worry about in today’s UK growth figures, since things were very different last quarter to the previous year. For a start, food prices were rising sharply in 2009, boosting retailers’ sales figures. Petrol is also a lot more expensive now (by 30%, no less), leaving customers with less money to spend on groceries that they didn’t even know they wanted. And then there’s all the political uncertainty linked to the Election, with worries about how the new Government might increase taxes.

Nonetheless, he says Tesco ‘continue[s] to see evidence of a steady consumer recovery’, boosted by World Cup fever – and he still seems very bullish that it will increase UK sales by 3% this year. That would be a pretty impressive achievement for a company of Tesco’s size – although he says that remains rather reliant on the Government not scuppering things with a hefty VAT rise.

The other important point is that Tesco is not as reliant on the UK market as some of its competitors. Across the group, sales were actually up more than 8%, thanks largely to its international division opening up lots of new retail space: sales in Asia rose a healthy 15.4%, while US sales (i.e. its much-maligned Fresh & Easy operation, which finally seems to be gathering some momentum) were up a hefty 37.8%, despite the strength of the dollar against the pound.

It’s pretty clear that this could be the big driver of Tesco’s sales growth in the coming years – and helps to explain why international boss Clarke will be the man to replace Leahy in the Tesco hot-seat next year.

In today's bulletin:

BSkyB shares rocket after News Corp takeover bid
Tesco looks abroad as UK sales growth grinds to a halt
Inflation finally falls - but house prices shooting up again
Letters from Malawi: Bribery without corruption
Do ex-CEOs make better chairmen than outsiders?

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