Tesco upbeat on outlook after first-half slowdown

Tesco chief executive officer Terry Leahy is "upbeat" about the outlook for the world's third largest retailer in the second half after it reported a slowdown in growth in its core British market in the first six months.

Tesco, Britain's biggest store owner, said yesterday the wettest summer on record at home caused sales excluding fuel at its UK stores open at least a year to rise 3.5 per cent in the 26 weeks to August 25. It was its slowest growth in Britain in years, although still exceeded analyst expectations.

But when the rain clouds cleared consumer spending at Tesco's 2,000 British stores - which contribute some 80 per cent of its profits - rebounded in August with UK like-for-like sales excluding fuel rising five per cent.

"I am generally upbeat about the business. We came out of the period after the bad weather very strongly," Mr Leahy said.

"It clearly looks now the next interest rate move will be down rather than up and could well be ahead of Christmas so there will be some relief for the consumers," he added.

Group underlying pre-tax profit rose to £1.317 billion, up 14.3 per cent from last year and in line with expectations.

"The profit performance from the UK has been marginally below our expectation, but this has been offset by an out performance from the group's international division," Numis analyst Jose Marco said.

Sales in the 12 countries where Tesco operates outside Britain rose 23 per cent at constant exchange rates to £6.4 billion, helped by a rapid rollout in China and Malaysia.

Going into the second half, the focus is on Tesco's anticipated launch in the US and further divestments from its multi-billion pound property portfolio.

Mr Leahy said Tesco remained committed to releasing value from its property despite concerns about property values in Britain and would carry out another deal in the second half. There was an "appetite" for property of the quality owned by the retailer following the global credit crunch, he added.