Tesco Logs Gains Despite Bad Weather

The British supermarket giant posted better than expected profits as customers responded to price cuts in August. Non-food sales rose significantly

Supermarket giant Tesco today overcame a rain-hit summer to post half-year profits of £1.32 billion.

The better-than-expected performance -- 14% ahead of last year -- came despite the "challenges" of the poor summer weather, chief executive Sir Terry Leahy said.

But the weather took its toll on UK like-for-like sales, which grew by just 3.5% excluding petrol in the six months to August 25.

Tesco's UK business, which has 1,500 stores, had performed ahead of expectations early in the period but slowed as downpours in June and July dampened sales.

The 3.5% like-for-like sales increase compares with the 5.5% sales growth, excluding petrol, seen last year and represents one of its weakest performances for several years as the sector as a whole comes under pressure.

Despite the unusual trading patterns, Sir Terry said the retailer enjoyed "strong sales momentum" during August as customers responded to price cutting from the retailer and lifted sales growth to around 5% during the month.

Tesco's overall UK sales reached £18.3 billion, an overall 5.4% increase on the same period last year.

The retailer added that UK non-food sales had also increased 9.9% in the first half despite the weather and consumers being cautious after recent interest rate hikes.

Although clothing sales were subdued, DVDs and console games enjoyed a stronger second quarter with "very strong" increases also seen for white goods, books, DIY and furniture.

Sir Terry added: "Tesco non-food sales remained robust and again grew significantly faster than our core business."

Across the group non-food sales grew 12% to £5.5 billion, accounting for around a quarter of Tesco's overall £22.6 billion group revenues.

Tesco's non-food sales were also helped by the launch of the latest Tesco Direct catalogue last month, which now includes around 7,500 items.

Despite start-up costs of £15 million during the half, Tesco Direct is expected to bring in revenues of £150 million over the full year.

The firm is also rolling out 10 more pilot Homeplus stores -- which will sell non-food goods only -- after a "pleasing" trading performance from the seven trial stores already up and running.

Tesco financial director Andrew Higginson said the group's sales performance "was all about the weather", saying: "We saw a difficult period in June and July, but then we were up in August."

The retail giant did not update on trading since the half year, although Mr Higginson said Tesco was performing in a more "normal range".

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