Photographer: Simon Dawson/Bloomberg

Tesco Surprises as U.K. Grocer Posts Increase in Christmas Sales

  • Customers respond to lower prices, increased store staffing
  • Sales provide boost for CEO after shares fell to 18-year low

Tesco Plc reported its first sales growth in more than four years as Christmas provided a sign that the struggling U.K. supermarket company’s turnaround is starting to pay off.

Group like-for-like sales rose 0.4 percent in the 19 weeks ended Jan. 9, boosted by an unexpectedly strong holiday period in the U.K. as customers responded to lower prices and increased store staffing. Revenue also improved in Tesco’s international operations. The shares surged as much as 7.4 percent.

The better-than-expected sales provide a boost for Chief Executive Officer Dave Lewis after doubts over the effectiveness of his strategy sent Tesco shares to an 18-year low this month. Sales reports this week from rivals J Sainsbury Plc and Wm Morrison Supermarkets Plc also beat analyst estimates, fueling optimism that the U.K.’s largest grocers are starting to wrestle back momentum from German budget chains Aldi and Lidl.

“The Dave Lewis turnaround plan appears to be working, with Tesco starting to push back against the fast-growing discounters,” John Ibbotson, an analyst at Retail Vision, said by e-mail. “The challenge is to keep up the momentum and stay in the game.”

Tesco shares were up 6.8 percent at 168.85 pence as of 8:06 a.m. in London, extending their gain to 15 percent this week.

U.K. same-store sales rose 1.3 percent in the six weeks ended Jan. 9, Tesco said. That compared with last year’s decline of 0.3 percent and the median estimate of 15 analysts for a 2.3 percent drop. Growth was better than any of its main competitors.

The volume of products sold increased by 3.5 percent and transactions by 3.4 percent as customers responded to prices that were around 5 percent cheaper than a year earlier, the addition of 4,000 store workers and record levels of product availability. 

Clothing sales grew “significantly ahead of the market,” Tesco said.

International like-for-like sales rose 4.1 percent in the Christmas period, with growth split evenly between Asia and Europe.

The grocer said it’s “on track” to meet estimates for full-year operating profit of about 930 million pounds.

Tesco also reported sales for the third quarter ended Nov. 28. Same-store revenue fell 1.5 percent in the U.K., compared with the median estimate of 15 analysts for a 2.5 percent drop. The figures exclude sales of fuel and value-added tax.

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