Tesco Plc, Britain's biggest retailer, reported slowing sales in its core UK market yesterday, missing analyst expectations and sending its shares lower, but showed strong growth internationally.
The worse-than-expected update is the latest in a series from British retailers pointing to a slowdown in consumer spending amid rising energy costs and weaker house markets, and the company called for lower UK interest rates.
Underlying sales at Tesco's UK stores open more than a year rose 3.1 per cent in the six weeks to January 5, slowing from 4.1 per cent growth in the third quarter and below forecasts of around four per cent.
Tesco shares lost more than four per cent of their value in early trading, underperforming a 1.1 per cent fall in the DJ Stoxx index of European retailers.
Numis analyst Jose Marco Tobares, who has a "buy" rating on Tesco stock, said the company's UK sales had fallen short of his forecasts but that was offset by 29.6 per cent growth in its international business and good progress in non-food sales.
Finance and strategy director Andrew Higginson said Tesco had enjoyed a good Christmas, but called on the Bank of England to lower interest rates to help shore up the confidence of a "more cautious" British consumer.
"The Bank of England does need to move quickly," Mr Higginson said in an interview.
The call for a rate cut echoes British largest clothing retailer, Marks and Spencer, last week, whose chief executive officer, Stuart Rose, reported falling like-for-like sales over Christmas, disappointing investors.
But while Mr Rose said a downturn could drag until spring 2006, Tesco's Mr Higginson said the outlook was impossible to call.
"I'd be worried about making a forecast at the moment. At this kind of level we can make good profits and we have to hope it continues," Mr Higginson said.
Among Britain's top four food retailers, Mr Higginson said he considered Tesco, and its nearest rivals Asda and J. Sainsbury to have performed about the same.
WM Morrison Supermarkets, which updates the market on trading on Tuesday, "had a better Christmas than everyone, well done to them," Mr Higginson added.
Sainsbury last week said its sales open at least a year rose 3.7 per cent, excluding fuel, in the third quarter to December 29, slightly outpacing Tesco's six-week update.
Adding to Tesco's discomfort, Sainsbury's shares rose 3.8 per cent yesterday after Goldman Sachs upgraded its stock to "buy" from "neutral" and added it to its conviction list.
Analysts had on average expected Tesco to report UK like-for-like sales, excluding fuel, up four per cent, a Reuters survey of eight brokerages showed. Forecasts ranged from 3.5 per cent to 4.5 per cent.
Group sales at the world's third largest supermarket group after Wal-Mart Stores Inc. and Carrefour rose 12.8 per cent in the period.
International sales grew 26.9 per cent from the 12 countries outside Britain where Tesco operates, broadly in line with analyst forecasts. Sales in Central Europe showed some of the strongest growth, rising almost 30 per cent.
Mr Higginson said customer response to Tesco's newest expansion in the US, where it has 30 stores operating under the Fresh & Easy brand, was "very encouraging".
He was non-committal about news Wal-Mart is opening convenience stores in Arizona in direct competition with the Fresh & Easy format. "As they say, imitation is the sincerest form of flattery," Mr Higginson said.