Tesco boosted by Christmas sales growth

Tesco (Frankfurt: 852647 - news) reported lower than expected sales over Christmas with a strong performance in groceries held back by weaker trading in general goods such bas DVDs and games.

Britain's biggest supermarket said like-for-like sales were up 1.9% in the six-week period to 6 January, with food up 3.4%, but that general merchandise dragged on the overall performance - though clothing was up.

Tesco also took a significant hit from lost tobacco sales after the collapse of wholesaler Palmer & Harvey in November put an extra strain on its distribution network.

Shares (Berlin: DI6.BE - news) were 4% lower in early trading.

Chief (Taiwan OTC: 3345.TWO - news) executive Dave Lewis said the business had again worked with suppliers to try and limit the impact of higher costs on shoppers.

He said: "We have continued to outperform the market throughout this period, particularly in fresh food, thanks to our most competitive offer for many years."

Alongside the Christmas update, Tesco reported a 2.3% rise in sales for the third quarter, just before the festive period, meaning that for the combined 19 weeks it was up by 2.1%.

The figures were published at the same time as a slew of retailers' trading updates, with rival supermarket Waitrose seeing like-for-like sales up by 1.5% over the six weeks to 30 December.

Waitrose, owned by the John Lewis Partnership, hailed the impact of "innovative" products such as chocolate and ginger mince pies and one-day only cut-price offers, but said the "highly competitive" market saw its profit margins come under pressure.

Tesco said all its formats, covering stores and online, had performed well, resulting in record sales and volumes in the four weeks leading up to Christmas Day.

It said own brand food ranges had performed strongly but general merchandise sales dragged like-for-like sales down by 0.6 percentage points over the Christmas period.

That mirrored a trend seen across the retail sector of squeezed consumers splashing out on grocery essentials, leaving them with less to spend on presents.

Lost tobacco sales after Palmer & Harvey's collapse knocked 0.5 percentage points off like-for-like growth.

Mr Lewis said the problems had now been resolved but "took the shine off an otherwise outstanding performance".

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