Tesco U.K. Sales Growth Accelerates Ahead of Holiday

Tesco Plc, the U.K.’s largest supermarket chain, said sales in the peak Christmas period are ahead of its forecast after the popularity of the Finest food range led to accelerating growth in the third quarter.

Sales at U.K. stores open at least a year rose between 0.7 percent and 0.8 percent, excluding fuel and value-added taxes, in the 13 weeks ended Nov. 27, Finance Director Laurie McIlwee said today on a call with journalists. That beat the 0.3 percent median estimate of nine analysts surveyed by Bloomberg News.

U.K. sales growth at the end of the quarter was twice the pace of the whole period, McIlwee said. Tesco, which gets about two-thirds of revenue in its domestic market, has expanded the premium Finest range, increased its seasonal offering and doubled rewards on its loyalty program to win shoppers. Grocer discounts are at record levels in the U.K., where Britons are spending less ahead of government-spending cuts and tax hikes.

“Tesco’s rhetoric going into Christmas is strong,” said Clive Black, an analyst at Shore Capital with a “buy” rating on the stock “We are encouraged by sentiment and momentum.”

Tesco rose as much as 2.6 percent in London trading and was up 9.55 pence at 429.55 pence as of 2:09 p.m. The shares are little changed this year.

Kate Middleton Dress

Tesco’s U.K. market share rose to 30.7 percent in the 12 weeks ended Nov. 28 from 30.6 percent a year earlier, the first increase since May, researcher Kantar Worldpanel said today.

Holiday sales so far are “ahead of expectations,” McIlwee said. “This will be our biggest Christmas ever with more stores open and our strongest-ever range,” he said.

U.K. sales were boosted by a shift among consumers toward better-quality products, including the Finest range, Tesco said. Tesco sells a 750-gram bag of Finest frozen peas for 1 pound ($1.58), while a 900-gram bag in the Value range costs 76 pence.

Same-store revenue from non-food products rose 3 percent, helped by sales of a dress like one worn by Kate Middleton after the announcement of her engagement to Prince William. Sales at the Tesco Direct online unit surged 30 percent, McIlwee said.

U.K. same-store sales growth, including value-added tax and excluding fuel, was 3 percent as the quarter ended, compared with 1.5 percent for the entire period, the executive said.

Sales growth in the fourth quarter is “going to be an improvement quarter-on-quarter,” he said.

“There’s a good recovery going on in the economy, it’s slow, but steady,” McIlwee said.

International Growth

Snowy conditions across the U.K. have had an impact on sales, particularly in Scotland, according to the finance director. Tesco has 3,000 tons of grit and 150 quad bikes to clear snow from car parking lots, he said.

Food-price inflation was 0.7 percent lower than in the previous quarter, McIlwee said. A pace of 1.5 percent at the end of the financial year “isn’t a bad assumption,” he said.

International same-store sales climbed 4.1 percent in the quarter, led by growth in Asia. Tesco said last month it plans to quadruple revenue in China to 4 billion pounds over the next five years by increasing store numbers and extending non-food merchandise like Florence & Fred clothing. Korea and Thailand are driving much of the growth, McIlwee said.

Same-store sales rose 9.8 percent at the unprofitable Fresh & Easy chain in the U.S., compared with 10 percent in the first half. The European business outside the U.K. reported positive same-store sales, excluding fuel, in all its markets for the first time in three years, the executive said.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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