Price cuts take toll on Tesco

LEADING supermarkets chain Tesco today announced Christmas sales figures below City expectations and blamed the shortfall on price cuts and petrol.

British sales, excluding the impact of new space, were up by 4.6% in the seven weeks to 5 January. The figure was lower than analysts had anticipated and less than the underlying growth reported by arch-rival Sainsbury's yesterday.

Stripping out petrol, where prices fell sharply at the end of last year, Tesco's underlying sales in Britain rose 6.2%, compared with 6.8% from Sainsbury's. Tesco pointed out, however, that its sales were affected by heavy price cutting and that volume growth (which excludes the impact of deflation) was 6.7%.

'Deflation has increased in the core business as we continue to cut prices,' the group said. Sainsbury's, by contrast, said its non-petrol sales had benefited from inflation of 1.5% over the three months to the beginning of January.

Tesco shares rose 3/4p to 237 3/4p, although the company said it was on track to meet yearend profit targets.

Chief executive Sir Terry Leahy warned in November that sales growth was likely to slow as he reported an underlying increase in third-quarter takings of 6.4%. Like-for-like growth is more likely to be about 4% this calendar year.

Christmas best- ellers included enormous quantities of party food as well as 600,000 bottles of Chablis and a 25% increase in the amount of champagne sold.

Customers spent more than £1m a day on home entertainments. More than 5m blank video cassettes were snapped up and sales of microwave ovens rose more than 50%.

Digital cameras were popular alongside mobile phone airtime and 99p Santa hats. The internet business alone sold 2.5m nappies and 12,000 Christmas puddings.

City supporters of Tesco said Sainsbury's had a very poor Christmas in 2000, so it was comparatively easy for the company to improve its performance. Tesco did extremely well in 2000, making strong sales growth much more difficult to achieve.

Overall sales for Tesco rose 11% over the festive period, boosted by a 31.2% rise from the company's international stores.

The group now has 102 hypermarkets and expects to have more space overseas than in Britain by the end of next year.