LONDON (AP) - Shares in Tesco PLC jumped more than 6 percent on Tuesday after Britain's largest retailer revealed that its plan to lure in shoppers worried about the recession with a new budget range is working.
Tesco also said that its international business, particularly in Asia, remains strong as it reported that worldwide sales rose 11.7 percent in the third quarter, compared to the same period a year ago.
"We are adjusting the business to meet the new challenges — focusing on becoming even cheaper for customers, keeping our costs low to help us to do this and managing our balance sheet and cash carefully," said chief executive Terry Leahy.
Analysts said the company's stock was bouncing back after being priced in recent days for the possibility of a profit warning in Tuesday's scheduled trading update.
"On balance, market consensus opinion currently denotes a tentatively positive stance," said Hargreaves Lansdown analyst Keith Bowman.
Shares in Tesco, the world's third-biggest retailer behind U.S. group Wal-Mart and France's Carrefour, rose 6.6 percent to 307 pence ($4.55) after the update.
Tesco said that same-store sales in its home market, excluding revenues from its gas, pumps rose 2 percent. Including gas, the total was up 3.2 percent.
While that marked a slowing in sales growth over the quarter — the 13 weeks to Nov. 22 — Tesco said its discount "value" range, which it launched in September to compete with hard discounters including German companies Aldi and Lidl, was performing well.
Analysts have been divided over the likely success of the strategy, noting that Tesco could divert its own customers to its cheaper range, reducing its own revenue.
But Leahy said that the company's British stores were attracting 300,000 more customers a week and improving volume growth in its core food categories.
Outside of Britain, the company sales were up 14.6 percent at constant exchange rates in the 13 weeks to Nov. 22, including a 29.4 percent rise in Asia, which was helped by its acquisition of supermarket chain Homever and in spite of the depreciation of the Korean won against the pound.
The company said it remains on track to open several new stores in its international division this year, which will provide around eight million square feet of new selling space.
In the United States, it has decided to maintain, rather than accelerate, its current rate of new store expansion and will open a half million square feet of new Fresh & Easy stores during the second half.
"Our early U.S. stores have now moved strongly into like-for-like growth and the performance of Fresh & Easy overall continues to be pleasing," the company said.
However, the update also showed that even Tesco, long dominant in Britain, is being affected by the economic downturn, revealing that same-store sales here have halved since the retailer reported its half-year results.
"Although the group's value offering has recently been bolstered, management appear to have been slow in gauging the consumer environment, with the company now paying the price," said Bowman. "Furthermore, whilst geographical diversification has generally been welcomed by analysts, a concerted downturn in economies globally was not expected."
Tesco did not report profit figures in its interim management statement. |