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Q3 sales slow but Tesco performs well


Britain's leading grocer Tesco Plc, which is making a big push into non-food products and developing markets, on Tuesday showed it was continuing to outperform rivals, despite slowing sales growth. Britain's biggest retailer, which broke through the one-billion-pound profit barrier for the first time this year, said third-quarter UK sales rose 6.4 per cent, after stripping out sales from new selling space. "That is probably better than most analysts had anticipated," said one industry analyst, who predicted modest upgrades to current-year profit forecasts. Tesco's sales also confirmed that the expected slowdown in the industry's exceptional sales growth this year had begun to show. Chief Executive Terry Leahy predicted in September that the next few months would sort out the winners from the losers as sales growth returned to more typical levels. In the first quarter Tesco achieved growth of 6.7 per cent, which accelerated to 7.4 per cent in the second quarter. It has consistently outperformed the industry's growth rate. Smaller rival Safeway Plc said last week its same-store sales growth was 5.7 per cent for the six months to October 13. During the same period the UK's second-biggest food retailer J Sainsbury saw growth of six per cent. "It is a good performance from Tesco," said David McCarthy, analyst at Schroder Salomon Smith Barney. "Although sales growth is slowing, they continue to outperform the competition." Tesco was the first UK food retailer to give a trading update covering the November period and gave crucial insight into the industry's growth trend. Its third-quarter figures covered a 14-week period to November 17. "It takes the story on from Safeway and Sainsbury," the first analyst said. "The key message here is that life is getting worse for the sector, but Tesco is living with it." Shares in Tesco opened one per cent higher at 247p. They are down 10 per cent this year but trade at a premium to UK and European sector peers. Since the end of June Britain's food retail sector has erased most of the gains won in the first part of the year, due to the deteriorating outlook. Tesco will also have to work harder to improve on its own tougher comparisons. In the first half of last year sales growth was 3.9 per cent, rising to 5.1 per cent in the third quarter and 6.9 per cent over the Christmas period. Salomon's McCarthy reckons the stock is still worth picking up. It has the best organic growth rate of all the major food retailers in Europe and is expected to make 1.225 billion pounds in profit this year. "The slowdown was expected, and the crunch time will come after Christmas," he said. "Tesco remains the best positioned to deal with this." The retailer said UK like-for-like sales would have been up 7.4 per cent if price cuts had not led to deflation of one per cent during the quarter, which covered the 14 weeks to November 17. Total group sales were up 12.2 per cent, with Britain contributing 9.2 per cent growth, while international sales grew 34 per cent.

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