Global recovery drives Tesco growth

Tesco’s group sales increased by 8.3% to £32.9bn in the 26 weeks to 28 August 2010.

Group profit before tax was up 12.5% to £1.6bn.

Tesco said it saw an improved trading performance in all regions in quarter two compared with quarter one.

In the UK, sales increased by 5.9% to £21.8bn and profit increased by 5.5% to £1.2bn.

On a like-for-like basis, and excluding petrol, UK sales rose 0.3% in the first half. Despite the low levels of same store growth, Tesco said it outperformed the market.

Total international sales increased by 16.8% with like-for-like sales growth of 4.1% in the second quarter (compared with flat sales in the first quarter). Like-for-like sales grew 5% in Asia and 3.1% in Europe. In the US, sales were up 58% with a 12.2% increase in like-for-like sales, driven by increased customer numbers.

Tesco said its performance in international has been encouraging in the first half. In the majority of markets the economic background has shown steady and in some cases – particularly in Asia – sharp improvement over the last few months. Some of the markets hardest hit in the downturn – notably Hungary and the western United States – have been slower to recover, although signs of improvement are now emerging. Japan remains a difficult retail environment, it said.

Tesco said its international businesses are increasingly leveraging the scale and skill of the Tesco Group for international sourcing; integrated buying; discount brands, now in seven markets; and F&F clothing, now selling in 10 countries. In addition, there are more than 20m Clubcard holders outside the UK, it said.

In China Tesco opened three ‘Lifespace’ shopping centre developments in Fushun, Qingdao and Qinhuangdao in the half and said the Tesco hypermarkets within these malls are already among its top stores by sales. It plans to open 17 new hypermarkets during the second half plus three new malls in Anshan, Ying Kou and Fuzhou.

In the US Tesco said Fresh & Easy’s sales per store are rising steadily and losses per store reducing. Tesco said it plans to accelerate the store opening programme next year and expects the business to break into profitability during 2012/13.

It has acquired the operations of its two largest suppliers – Wild Rocket Foods and Two Sisters – which are being integrated within its existing manufacturing facilities.

Tesco said first half losses at Fresh & Easy rose as a result of these acquisitions and also from additional rental costs incurred on unopened stores. Full year losses have plateaued, it added, and it does not expect this year’s losses to be very different to last year.

Tesco said customer enthusiasm for the range, particularly the fresh food prepared in the Fresh & Easy kitchen; competitive pricing; neighbourhood locations and environmental credentials; is strong and still growing, as is awareness of the Fresh & Easy brand, driven by recent media campaigns.

“We are continuing to learn – adapting and improving our offer in response to customer feedback – but we know our format has strong consumer appeal,” it said.

However, Tesco is mothballing 13 stores; six in Nevada, six in Arizona and one in inland California because the expected population growth in these neighbourhoods has not materialised. Tesco said it will re-open these stores when the housing and employment markets pick up.

It plans to open 19 new stores in the second half of the year with a continued focus on areas where the local economy has been less severely hit and aims to increase the pace of store openings, helped by the strong pipeline of new sites it already have in place.

In the UK, Tesco said availability had improved and reached 97.5% at the end of the first half, helped by better promotions forecasting and reaction to weather changes.

Technology is being used to improve service and Tesco said 10m customers a week are using self-service checkouts. Trials of scan-as–you-shop, hand-held technology, have gone well, it said, and it plans to introduce more stores next year.

Tesco said it had improved merchandising in fresh areas and introduced more specialists in stores to improve the customer perception of fresh food.

Non-food sales have continued to grow, despite cut backs in discretionary spend, said Tesco.

Overall Group non-food sales rose 4.8% during the first half to £6.5bn, up from £6.2bn last year.

In the UK, non-food sales grew by 2.5% to £4.4bn, with a stable like-for-like performance in the first half overall and slower growth in the electrical and entertainment categories. Toys, sports, cookware and soft furnishings grew well in the first half.

In clothing in the UK Tesco said it grew ahead of the market with a strong performance in menswear and in children’s wear, helped by the Back to School season.

In Europe, clothing sales increased by 12% and Tesco is the market leader in Hungary and the Czech Republic. Building on the success of the F&F brand it has introduced its F&F Blue and F&F Basics sub-brands in Europe and it opened first standalone clothing store in Prague last week.