Tesco Reports Soft Business in U.K., U.S.

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Tesco Reports Soft Business in U.K., U.S.

LONDON -- Tesco, the U.K.-based supermarket and convenience store retailer, reported that like-for-like sales—the U.K. equivalent of same-store sales in the U.S.—rose just 2 percent in its U.K. stores in the third quarter. That figure, which excludes petroleum sales, is the lowest increase in growth since 1993 for the international retailer.

Total group sales, however, rose 11.7 percent thanks to strong international performance. Worldwide, sales were up 28.1 percent based on actual exchange rates with particularly strong growth in Asia of 29.4 per cent.

"We are pleased with our progress, but we are also realistic," Chief Executive Terry Leahy said. "The current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling."

Leahy said Tesco’s rapidly expanding international operations have delivered excellent growth and the core business in the U.K. has done "remarkably well" despite "very subdued conditions."

Don’t count the United States among the international bright spots for Tesco, however. Leahy acknowledged Tesco’s new Fresh & Easy convenience grocery hybrid has experienced a difficult first year. "The U.S. is in recession," he said in a question and answer session on the company’s third quarter interim results. "The western United States, where we’re opening, is in severe recession at the moment, so it makes sense to maintain our rate of opening rather than the planned acceleration in the rate of opening because you can’t just buck a downtown of that magnitude. [Fresh & Easy] is very popular. It is well received by customers. The U.S. will bounce back, the western United States will bounce back. We’ll be able to step up our rate of growth when that happens."

Tesco is the U.K.’s largest supermarket chain and said it is attracting 300,000 more customers a week driven by the early success of its new ‘Discounter’ products and related changes.

"We are adjusting the business to meet the new challenges—focusing on becoming even cheaper for customers," Leahy said. "As we apply all the resources of the group to these priorities, I remain confident that Tesco can maintain a strong business performance and pursue its long term strategy even in tough times."