Tesco has reported impressive figures for its third quarter and Christmas trading periods, with strengthening growth in the UK and underlying improvements in many international territories. The results mean that Tesco now expects it could deliver full year operating profits slightly ahead of the consensus forecast of £1.2bn.
Headline LFL results
Q3: 13 weeks to 26 Nov
Christmas: 6 weeks to 7 Jan
|UK & ROI
Encouraging UK Christmas result
Tesco's Christmas result is a considerable achievement against a +1.3% comparative from 2015 when it was the best performer of the major multiples. It means Tesco has now delivered eight consecutive quarters of volume growth and three successful Christmases. The result was broad-based with a positive LFL sales growth across all formats and came despite further price cutting. Tesco's basket of goods is now 7% cheaper than September 2014, compared with -6% at the half year. The result is also testament to the success of initiative to improve service levels. Availability in the peak Christmas week was up 1% on last year.
Investments in food pay off
At the heart of Tesco trading success was good growth from its seasonal offering, particularly core Christmas ranges and fresh lines, including a 24% increase in party food sales and an 18% increase in Free From, a range that was specifically highlighted in Christmas TV ads. Overall LFL food sales were up +1.3%, ahead of the market, lifted by Tesco's much increased focus on quality and innovation, and also by affordability through its farm brands.
Non-food impacted by axing of Clubcard Boost
Tesco calculates that it its UK LFL would have been 0.8% higher had it not scrapped its Clubcard Boost promotion. While an effective sales driver, this carried considerable costs and ending it has enabled Tesco to invest in value across its proposition. Ending Boost resulted in lower non-food sales, though within the category there were some notable successes, particularly clothing (+4.3%, lifted by a 40% gain in seasonal clothing) and toys (+8.5%, which benefited from a price checking initiative against 8,000 lines at Sainsbury's owned Argos).
Progress in international markets
Overall international sales were down 0.1% over the 19 week period with a similar performance in Europe and Asia. In Europe, Tesco experienced good third quarter growth in Hungary, the Czech Republic and Slovakia which helped to offset the impact of intense competitive activity in Poland. In Ireland, LFL sales rose by 0.1% over the 19 week period as investments in lower prices, particularly over the Christmas period, delivered strong volume growth and increased customer transactions. In Asia, trading was weakened by a subdued consumer mood following the death of the king of Thailand.
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