Tesco Sales Rise Most Since 2010 as Grocer Starts Revival

Tesco Plc, the biggest U.K. grocer, reported the strongest sales growth since 2010 as money-off coupons and an enhanced food offering helped spark a revival.

U.K. sales at stores open at least a year rose 1.8 percent in the six weeks ended Jan. 5, excluding gasoline and value-added taxes, the Cheshunt, England-based grocer said today. That was only the second quarter of growth in eight and beat the 1 percent median estimate of 10 analysts compiled by Bloomberg.

The sales, while flattered by comparison with what the grocer described as “disappointing” sales a year ago, provide an indication that Chief Executive Officer Philip Clarke’s efforts to regain customers are paying off. Clarke has been overseeing the domestic business since March when the failed Big Price Drop campaign led the grocer to cut profit guidance for the first time in 20 years. Tesco said today that U.K. Chief Operating Officer Chris Bush will take over the role.

“The U.K. recovery is well on track,” James Collins, an analyst at Deutsche Bank AG in London, said in a note. “The improvement is broad-based, with all regions and all formats showing positive like-for-likes, driven by the food business.”

Tesco rose as much as 3.2 percent in London trading and was up 2.4 percent at 357.4 pence as of 10:05 a.m. The stock has gained 6.4 percent this year after falling 17 percent in 2012.

“We were back on form,” Clarke told reporters on a conference call today. “Our stores performed well, every format made a contribution to that like-for-like growth.” Online sales advanced 18 percent, the company said.

Brighter Stores

The CEO said Tesco’s investment in own-label products “is starting to pay off.” The 1 billion-pound ($1.6 billion) Value range was relabelled under the Everyday Value banner last year.

Tesco’s share of U.K. grocery spending fell to 30.5 percent in the 12 weeks ended Dec. 23 from 30.6 percent a year earlier, Kantar Worldpanel said this week, the 0.1 percentage point drop being an improvement on an average 0.4 point decline for 2012.

The grocer is investing 1 billion pounds ($1.6 billion) to provide additional staff, refresh its own-brand products and brighten stores. It’s also seeking to woo shoppers with money-off vouchers amid a grocery market that’s facing record levels of promotions and rising food-price inflation.

Smaller competitor J Sainsbury Plc yesterday reported the slowest sales growth in eight years as Tesco fought back. Marks & Spencer Group Plc said same-store sales of food barely rose as it reported quarterly sales that missed estimates.

Management Changes

The task of maintaining Tesco’s U.K. recovery will now pass to Bush, a 30-year company veteran who was brought back to the U.K. last year, having led Tesco’s Thai business since 2010.

Bush will join the retailer’s executive committee which oversees group strategy, along with Tesco Bank chief Benny Higgins, and Jill Easterbrook, who leads Tesco Ireland and the mobile-phone unit. European CEO Gordon Fryett will retire in November and be replaced by Ken Towle, the internet retailing director. Tesco also said Robin Terrell will join from the House of Fraser department-store chain as multichannel director.

The company’s full-year outlook in the U.K. is unchanged, Clarke said, describing the future as “somewhat uncertain.” He declined to speculate on whether Tesco will continue to post same-store sales growth in its domestic market, where it still gets about two-thirds of revenue.

The retailer said its businesses in Asia and Europe had a “similar performance” to the previous quarter.

Six-week revenue in Asia rose 7.6 percent at constant exchange-rates as stronger sales in Thailand offset regulatory restrictions on Sunday trading in South Korea. Revenue in Europe declined 0.6 percent on the same basis.

In the U.S., which Tesco has said it expects to exit after announcing a review of its Fresh & Easy chain, sales increased 4.1 percent from a year earlier, the company said.

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