Tesco eats into rivals despite muted festive performance

● Retail giant sees underlying sales in UK rise by 0.7% ● Mixed reaction from City to latest trading numbers

Analysts yesterday questioned the resilience of Tesco’s sales recovery after Britain’s biggest retailer reported modest growth over the key festive trading period and grew its market share for the first time in five years.

Chief executive Dave Lewis said the supermarket giant had made “sustained strong progress” as he unveiled a 0.7 per cent increase in UK likefor-like sales in the six weeks to 7 January, compared with a year earlier. The rise in Christmas sales was helped by strong demand for fresh food.

Tesco also notched up a 1.8 per cent rise in third-quarter UK sales, marking a year of continuous growth as recovery under Lewis continues.

However, shares came under pressure after the group reported disappointing nonfood sales in its home market, partly as a result of it not repeating a Clubcard “Boost” promotion.

International like-for-like sales were 1.2 per cent lower reflecting “a particularly strong seasonal performance last year in addition to weaker consumer spending in Thailand”. Nicholas

Hyett, equity analyst at Hargreaves Lansdown, said: “It’s five years since Tesco last took market share from its competitors.

“There are signs that the giant might be stirring once again, but a slow down over the Christmas period will leave many investors worrying whether the group can achieve sustained growth.”

Lewis said Tesco, which was embroiled in a furore over an inflation-linked rise in the price of Marmite last year, was working “shoulder to shoulder” with suppliers to help mitigate the impact of the slide in the value of sterling.

He said: “Inflation pressure is there, but we will keep doing everything we can to minimise the impact.”

The chief executive, who has been leading an overhaul since he took over from Philip Clarke in 2014, aims to slash costs by £1.5 billion over the next three years to help boost margins and return the group to bottom-line profit growth.

Tesco said it was on track to deliver at least £1.2bn in group operating profit for the full year.

John Ibbotson of Retail Vision took an upbeat view of the retailer’s prospects, saying: “Tesco’s revival continues apace. [It] still has some housekeeping to do, not least its large pension deficit, but its size will increasingly prove decisive, helping it to keep prices down for longer than its rivals and maintain its margins.

“Tesco is back and it means business.”