Tuesday, October 5, 2010

esco sees robust global recovery, no double dip

LONDON: Tesco, the world's third-biggest retailer, believes the global economy is recovering strongly and growth in emerging markets will help to prevent developed economies from falling back into recession.

The British group, which beat forecasts with a 14 percent rise in first-half underlying profit, also said on Tuesday, Oct 5 it expected its loss-making U.S. business Fresh & Easy to break even in 2012-13, ahead of some analysts' expectations.

"My starting point is the global economy, which is in a pretty robust recovery," Chief Executive Terry Leahy told Reuters, delivering his last set of results before handing over to international chief Phil Clarke in March.

When asked whether he thought developed markets like Britain might fall back into recession, Leahy said: "I don't think it will. If you look at the customer psychology and the pulling power of the developing markets, I think they will pull Europe and the United States into a stable and established recovery."

Tesco, with over 4,800 stores in 14 countries, said profit before tax and one-off items rose to 1.79 billion pounds ($2.8 billion) in the 26 weeks to Aug. 28, helped by growth in Asia, productivity gains, property deals and lower interest costs.

Trading profit met forecasts with a 9 percent increase, though, and sales growth in Britain, where Tesco makes about two thirds of sales and profits, remained sluggish in what the group described as a "slow and steady" economic recovery.

Tesco, world No. 3 behind France's Carrefour and U.S. leader Wal-Mart, said losses at U.S. chain Fresh & Easy would be similar to last year's 165 million pounds.

But first-half like-for-like sales were up about 10 percent, and the group said it would accelerate store openings next year with a goal of reaching a profit in the 2012-3 fiscal year.

"A big positive surprise," said Shore Capital analyst Clive Black, adding that target was three years ahead of his forecast.

He kept his full-year profit expectations, but said there was now more pressure for upgrades than downgrades.

At 0730 GMT, Tesco shares were up 1.1 percent at 434.8 pence, valuing the firm at about 35 billion pounds.

The shares have lagged the STOXX 600 European retail index by 7 percent this year amid concerns about returns on international investments, particularly in the United States.

Leahy said returns were improving, without giving details, and added that while his successor would review all Tesco's businesses, he was sure he would not quit the United States.

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BRITAIN LAGS BEHIND

Group sales climbed 7 percent, excluding VAT sales tax, to 29.8 billion pounds in the first half, just below analysts average forecast of 30.1 billion in a Reuters poll.

Second-quarter sales at stores open at least a year rose 4.1 percent in overseas markets, up from flat in the first quarter and including 5 percent in Asia and 3.1 percent in Europe.

Underlying sales in Britain, however, were up just 0.4 percent, excluding fuel and changes in VAT.

While better than the first-quarter's 0.1 percent rise, analysts expect this will be beaten by rival J Sainsbury in a trading update on Wednesday.

Leahy said Tesco was interested in assets being sold in southeast Asia by Carrefour, but any deal would depend on price, and that it had no plans to follow Wal-Mart to South Africa.

He was also hopeful Tesco Bank would win regulatory approval to be able to sell mortgages by March.


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