Tesco sees robust global economic recovery

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. Skip related content

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

“My starting point is the global economy, which is in a pretty robust recovery,” Chief Executive Terry Leahy told Reuters in a telephone interview.

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 in the 26 weeks to August 28, helped by growth in Asia, productivity gains, property deals and lower interest costs.

“A tad ahead of expectations,” said Arden Partners analyst Nick Bubb, who has an “add” rating on Tesco’s shares.

However, trading profit met forecasts with a 9 percent increase and sales growth in Britain, where Tesco makes about two thirds of sales and profits, remained sluggish.

Tesco, world No. 3 behind France’s Carrefour and U.S. leader Wal-Mart, said group sales rose 7 percent, excluding VAT sales tax, to 29.8 billion pounds, just below analysts average forecast of 30.1 billion in a Reuters poll.

Second-quarter sales at stores open over a year rose 0.4 percent, excluding fuel and changes in VAT, up from 0.1 percent in the first quarter and in line with analysts’ mean forecast.

J Sainsbury, the country’s No.3 grocer, is expected to report stronger growth in its fiscal second quarter on Wednesday, helped by more affluent shoppers.

Tesco 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.

One trader said the shares were set to open 0.8 percent higher after closing at 430 pence on Monday, which valued the business at about 34.4 billion pounds.
Source: Reuters