Tesco reports "subdued" UK growth

In the UK, trading profit was up 4.5%, while growth in Europe was up 11.8% and in Asia up 18.7%. US losses reduced by 23.2% and Tesco said it is on track for a sharp reduction in its full year.

In the UK, like-for-like sales excluding petrol and VAT were down by 0.5%, with a fall of 0.9% in the second quarter. Total sales were up by 3.4% in the first half.

Tesco chief executive Philip Clarke said he was pleased by “excellent growth in Europe and Asia, as well as an encouraging performance in the US” but outlined the “challenges of subdued demand in the UK, particularly in non-food categories”.

In the UK, Tesco said electronics and entertainment were particularly subdued. It said the food performance was “substantially better” and positive in like-for-like terms, but overall like-for-like growth was “slower than planned”.

Tesco, which last week launched its Big Price Drop in the UK, said future cuts will continue to focus on products that families buy most frequently. It said: “These moves represent the most significant changes to our pricing and promotions strategy for many years.”

Tesco said there is more change to come both in food and non-food but it is not assuming customers and therefore volumes to respond immediately, therefore it is planning for UK profit growth to be broadly flat during the second half.

In a video today, Clarke said he is confident that the investments Tesco is making in the UK will “seize the advantage from our competitors”. He said: “We’re very confident that in the medium term and the long term Tesco can continue to grow in the UK. There’s much more to come; much more opportunity than I ever imagined at home. And that will be great for our customers, it will be great for our staff, I think it will be great for the shareholders too.”

In Asia, Tesco reported sales up 11.7%, while in Europe, sales were up 12.4%.

In the US, sales were up 23.1% to £304m and losses reduced to £73m. It said it is on track to break even towards the end of 2012/13. It said the further changes it has made to stores have been well received such as introducing in-store bakeries, loose produce, and additional ranges in grocery. It has also trialled its Friends loyalty card at seven stores and plans a full roll out of the scheme next week.

Group general merchandise has been subdued although Tesco said it achieved some “pleasing” performances in computing, toys, sport and leisure in the UK but categories like electronics and entertainment impacted growth. Overall group sales in these categories rose 2.8% at constant exchange rates to £4.8bn.

In the UK, general merchandise, clothing and electricals were down 0.9%. Like-for-like growth across the whole of general merchandise, clothing and electricals was down 4.8%, compared with a fall of 3.3% in the second half of last year. It said margins have held up “very well”.

General merchandise, clothing and electrical sales in Europe were strong. Clothing sales increased by 11%.

Tesco will launch an upgraded version of Tesco Direct online in the first half of 2012, which will also include its first phase of its ‘Marketplace’ - enabling customers to buy from selected sellers on Tesco.com.

Tesco has also decided to slow the final stage of the Tesco Bank systems migration to ensure it is as smooth as possible for customers as it prepares for growth next year. Mortgages and current accounts will now launch next year.